Speaker 1: Bloomberg, Audio Studios, podcasts, radio News.
Speaker 2: Good Evening.
Speaker 3: Federal Reserve Chair Jerome Powell issued an extraordinary statement on
Speaker 3: Sunday night. The FED posted a video of Powell reading
Speaker 3: it in full.
Speaker 2: On Friday, the Department of Justice served the Federal Reserve
Speaker 2: with grand jury subpoenas threatening a criminal indictment related to
Speaker 2: my testimony before the Senate Banking Committee last June. That
Speaker 2: testimony concerned, in part, a multi year project to renovate
Speaker 2: historic Federal Reserve office buildings.
Speaker 4: These developments represent an extreme excavation of the pressure campaign
Speaker 4: that the Trump administration has been putting on the FED
Speaker 4: and chaired Jerome Powell for months now.
Speaker 3: That's Amera amok Way. She covers the Federal Reserve for
Speaker 3: Bloomberg along with Enda Current.
Speaker 1: What you're talking about is effectively threatening the Federal Reserve
Speaker 1: chair with criminal charges over the costs of a building project,
Speaker 1: when we know the backstory is that the White House
Speaker 1: is very unhappy with where interest rates are at and
Speaker 1: they want to use his current opportunity to remold the
Speaker 1: Federal Reserves.
Speaker 3: Enda and emer have been tracking how the relationship between
Speaker 3: Trump and Powell has evolved or devolved since Trump first
Speaker 3: tapped Powell to be the chair of the Federal Reserve
Speaker 3: in twenty seventeen, and they've reported on the President's efforts
Speaker 3: to try to fire Powell and to reshape the Central Bank.
Speaker 3: Powell's term is fed share ends in May, and Preston
Speaker 3: Trump says he's close to naming someone to succeed him.
Speaker 3: In the face of insults and threats, Powell has kept quiet.
Speaker 3: He's been reluctant and often unwilling to answer reporter's questions
Speaker 3: about what President Trump has said about him. So his
Speaker 3: statement on Sunday is a sea change.
Speaker 2: This unprecedented action should be seen in the broader context
Speaker 2: of the administration's threats and ongoing.
Speaker 3: Pressure, controversy over that renovation, and allegations he misled Congress
Speaker 3: in testimony last summer. Those are pretacts, Powell said.
Speaker 2: The threat of criminal charges is a consequence of the
Speaker 2: Federal Reserve setting interest rates based on our best assessment
Speaker 2: of what will serve the public, rather than following the
Speaker 2: preferences of the President.
Speaker 3: I'm David Gera, and this is the big take from
Speaker 3: Bloomberg News today. On the show, the Department of Justice
Speaker 3: subpoenas the Federal Reserve, what it means for one of
Speaker 3: the most important financial institutions in the world, for its leader,
Speaker 3: Jerome Powell, and for the White House, and where things
Speaker 3: could go from here. In Feed Reserve Chair Jerome Powell's
Speaker 3: statement about the subpoenas the Department of Justice served the
Speaker 3: FED on Friday, Powell said, they're part of something bigger.
Speaker 3: They're a threat to the Fed's long standing independence.
Speaker 2: This is about whether the FED will be able to
Speaker 2: continue to set interest rates based on evidence and economic conditions,
Speaker 2: or whether instead monetary policy will be directed by political
Speaker 2: pressure or intimidation.
Speaker 3: Amara, let's start with this statement and what made it
Speaker 3: unique or unprecedented. Why in terms of medium and message
Speaker 3: was the statement so significant?
Speaker 4: Wow, David, when I read this statement, I had to
Speaker 4: take I mean, usually take a minute before you start writing,
Speaker 4: but I took like an extra minute because I was like,
Speaker 4: this is this is truly remarkable that j. Powell is
Speaker 4: coming out with both video and text and doing a
Speaker 4: very direct response to the administration, a very forceful response
Speaker 4: to the administration. Usually, when Chair Pale is asked about
Speaker 4: things that President Trump is saying or things that the
Speaker 4: administration is doing, you can almost predict what he's going
Speaker 4: to say. It is usually we at the FED, we
Speaker 4: just try to stick to our knitting. We try to
Speaker 4: stay out of politics. We just want to do a
Speaker 4: good job for the American people, some version of that.
Speaker 4: This was so very different than what he usually says
Speaker 4: in response to attack and pressure from the administration. He said,
Speaker 4: this issue of the building renovation and what he said
Speaker 4: to Congress last year about it are essentially pretexts for
Speaker 4: the administration to go after him and go after the
Speaker 4: FED because the FED has not delivered their preferred policy,
Speaker 4: and he basically just came out swinging and for the FED,
Speaker 4: which just likes to kind of take sort of a detached,
Speaker 4: above the freight approach, this is really a departure from
Speaker 4: how they usually respond to these kinds of situations, and
Speaker 4: it just shows that they, I think that they are
Speaker 4: taking it very seriously and they do see this as
Speaker 4: perhaps the realist and most serious threat to the Fed's
Speaker 4: independence since President Trump returned to office.
Speaker 3: That was your reaction? What was the reaction of markets
Speaker 3: to this news, both of the subpoenas and the statement
Speaker 3: from the FED chair.
Speaker 4: So initially we saw and I think we are still
Speaker 4: seeing sort of this selloff in sort of the America
Speaker 4: trade right. As ND and I have written about, markets
Speaker 4: have tended to take these threats to FED independence kind
Speaker 4: of enstride, and it'll be interesting to see if people
Speaker 4: see this development something that is more serious than previous developments.
Speaker 4: You know, even when the President moved to FIREFED Governor
Speaker 4: Lisa Cook, we didn't really see much of a reaction
Speaker 4: in markets, and that was really surprising because people were like, WHOA,
Speaker 4: that is unprecedented that the President is trying to remove
Speaker 4: a FED governor.
Speaker 1: I think in terms of attacks on an institution that
Speaker 1: is at the center of steering the economy, at an
Speaker 1: institution that is meant to be independent of politics and
Speaker 1: a scene as such, it's pretty unprecedented in its nature, David,
Speaker 1: no doubt about it. So on paper, it's an argument
Speaker 1: about classic government cost overrun, but we know the backstory
Speaker 1: runs much deeper than that.
Speaker 3: And it didn't take long before we heard from members
Speaker 3: of the Senate Banking Committee. What have lawmakers said in
Speaker 3: response to again the news of the subpoenas and also
Speaker 3: what Chair Powell said about them.
Speaker 1: Well, we've had one interesting intervention in particular, David, with
Speaker 1: a Republican Party. Senator phyllis making the point that he
Speaker 1: first of all views this as a police little attack
Speaker 1: on the FED, and he has made the point that
Speaker 1: he will use his role on the relevant committee in
Speaker 1: the Senate, the Banking Committee, to block the approval of
Speaker 1: wherever the White House puts up to be the next
Speaker 1: FED Chair or any other Federal Reserve appointment in the meantime. Now,
Speaker 1: that's very important because it's the first major intervention from
Speaker 1: the Hill and into the pressure that the White has
Speaker 1: have been putting on the FED. Number one, it comes
Speaker 1: from the Republican side of things as well. But number two,
Speaker 1: it means that President Trump and the treasure Tecuy Bestin
Speaker 1: had been floating we're going to announce a new FED
Speaker 1: chair at some point soon overcoming weeks. Well, if they
Speaker 1: go ahead and make that announcement, now, the entire FED
Speaker 1: watching world in the rest of the world will say, well,
Speaker 1: hold on, you don't have the numbers to get that
Speaker 1: person approved.
Speaker 3: Mara at the center of all of this is this
Speaker 3: renovation project of these two feder Reserve buildings in Washington.
Speaker 3: Just remind us what that issue is and sort of
Speaker 3: why it's become so controversial.
Speaker 4: Yes, So this issue really bubbled up over last summer
Speaker 4: after there were media reports about this and a half
Speaker 4: billion dollar renovation of two historic buildings that the FED
Speaker 4: is doing at its headquarters in DC. The media reports
Speaker 4: kind of characterized the project as very extravagant, that it
Speaker 4: had all these fancy design features and things like that.
Speaker 4: And so when Chirpal went to do his semi annual
Speaker 4: testimony before Congress, he was asked about this and he
Speaker 4: sort of pushed back against the idea that the project
Speaker 4: is very extravagant. He did have to answer questions about
Speaker 4: the fact that the project's costs have risen over time,
Speaker 4: and that testimony is really at the center of the
Speaker 4: subpoenas because you had allies of President Trump after the
Speaker 4: testimony say that Palell was not honest during that testimony,
Speaker 4: and they called on Congress and the DOJ to investigate
Speaker 4: whether he had lied to Congress, And evidently we now
Speaker 4: have that DOJ investigation now. For his part, pal has
Speaker 4: said that he was truthful during that testimony, and he's
Speaker 4: also said that during the entire course of the project
Speaker 4: that the FED has aimed to be transparent about its
Speaker 4: costs and other issues and keep Congress informed.
Speaker 3: It was maybe like a month after that congressional testimony
Speaker 3: that President Trump made that unprecedented trip to Federal Serve
Speaker 3: headquarters the ERA and got a tour of the construction site.
Speaker 3: Could you just describe that moment, both the tours of
Speaker 3: what the President said afterward, there was this kind of
Speaker 3: memorable exchange between the FED Chair and the President about
Speaker 3: how big those overruns are.
Speaker 4: President Trump went over there, walked around, and then he
Speaker 4: threw out a number about how much the project costs.
Speaker 4: It looks like it's about three point one billion, one up.
Speaker 1: A little bit or a lot.
Speaker 4: And you may have seen the memes.
Speaker 2: Yeah, it just came out.
Speaker 1: I haven't heard that from anybody.
Speaker 4: To FED Chairpaul was like what like looking at a
Speaker 4: piece of paper and it went completely viral because Cherpaul
Speaker 4: was like, no, actually, that's not how much it costs.
Speaker 2: You just added into third buildings.
Speaker 4: What that is.
Speaker 2: That's a third building. It's a building that's being built
Speaker 2: and he was built five years ago.
Speaker 4: That visit by President Trump's of the construction site was
Speaker 4: actually really surprising because given all the pressure and all
Speaker 4: the criticisms that he and his administration have been lobbing
Speaker 4: about the project. You would have expected him to go
Speaker 4: over there and come out and really be critical, but
Speaker 4: he was kind of nice. He was like, oh, you know,
Speaker 4: it's okay. You know, this is not a reason to
Speaker 4: fire him.
Speaker 3: Are there are things the Chairman can say to you
Speaker 3: today that.
Speaker 1: Would make you back off some of the earlier criticisms.
Speaker 3: Well, I'd love him to lower interest rates.
Speaker 1: Other than that, I tell you.
Speaker 4: So, you left with the impression that maybe the construction
Speaker 4: project was something that the administration was kind of leaving behind,
Speaker 4: because President Trump really was kind of tame when he
Speaker 4: visited the site over the summer.
Speaker 3: And the Fed chair in his statement counseled everybody to
Speaker 3: kind of look at what's happened here over the weekend.
Speaker 3: In this broader context, it does seem that, you know,
Speaker 3: after that tour, things quieted down a little bit. Yes,
Speaker 3: there's this matter involving le A Cook that's still kind
Speaker 3: of roiling in the background. The President tried to fire her.
Speaker 3: She's a FED governor in the Supreme Court is going
Speaker 3: to wait the legality of that in the coming weeks.
Speaker 3: Help us understand the broader context here of the relationship
Speaker 3: between the Trump, White House, and the Federal Reserve. Going
Speaker 3: into the.
Speaker 1: Weekend, it's obviously a very tense day, but it is kind
Speaker 1: of two front suit. On the one hand, there is
Speaker 1: the headline that the White House wants lower boring costs,
Speaker 1: you know, cheaper money, and the Federalerserve policymakers have been
Speaker 1: reluctant to move as fast as the White House because
Speaker 1: they're still worried about where inflation is at and if
Speaker 1: you cut indust rates too low too quickly, they're worried
Speaker 1: that inflation would take off. So that's the first point
Speaker 1: of tension between them. But the subplot underneath this is
Speaker 1: that President Trump is also looking for opportunities to reshape
Speaker 1: and remold the FED in the way he wants it
Speaker 1: to be, to share his worldview on the economy, and
Speaker 1: in particular, he has the opportunity to of course appoint
Speaker 1: a new FED chair at some point soon to replace
Speaker 1: a chair Palell when he steps down his chair in May.
Speaker 1: Chair Powell can actually remain on the FED board until
Speaker 1: early twenty twenty eight, and the thinking speaking to FED
Speaker 1: watchers is that the White House are very concerned that
Speaker 1: Chapell might stay on the board for some time and
Speaker 1: deny them the opportunity to fill that gap with somebody
Speaker 1: who shares their view and where interest rates should be.
Speaker 1: And that's why this is thinking that this is part
Speaker 1: of a concerted pressure campaign to you know, pressure mister
Speaker 1: Powell to move on off the board once his termers
Speaker 1: chair steps up. So there's been that pressure, of course
Speaker 1: on Governor Cook with that unprecedented attempt to fire her.
Speaker 1: We had the insulation of Governor Myron. It adds up
Speaker 1: to this idea that we're in a moment where, you know,
Speaker 1: Trump really is trying to remold the FED the way
Speaker 1: Trump wants it to be.
Speaker 3: So what do we know about the Department of Justice's
Speaker 3: threat of a criminal indictment? That's after the break Federal
Speaker 3: Reserve Church. Jerome Powell acknowledged the FED was served grand
Speaker 3: jerysapoena's late last week. The Justice Department is investigating whether
Speaker 3: Powell lied to lawmakers in June when he testified before
Speaker 3: the Senate Banking Committee. Bloomberg is reporting this effort was
Speaker 3: largely driven by the director of the Federal Housing Finance Agency,
Speaker 3: Bill Poulti. Pulty declined to comment on that during an
Speaker 3: interview on Bloomberg television on Monday morning. The DOJ's outside
Speaker 3: of my purview.
Speaker 4: This is out of my purview. I don't know anything
Speaker 4: about it, and I would defer you to the DOJ.
Speaker 3: According to Bloomberg FED reporters Enda Curran and Amara amok Way,
Speaker 3: President Trump has said he was not briefed on the
Speaker 3: Justice Department's investigation and he had no prior knowledge of it.
Speaker 4: He did an interview with NBC News on Sunday night
Speaker 4: after news of these subpoenas came out, and he said
Speaker 4: he didn't know anything about the subpoenas, and he said
Speaker 4: that they didn't have anything to do with his desire
Speaker 4: for lower interest rates. So make of that what you will.
Speaker 3: And I posted the FED chair statement the text of
Speaker 3: it on LinkedIn shortly after the FED public And this
Speaker 3: is what our colleague John Author has commented. He's a
Speaker 3: commist for Bloomberg Opinion friend of the show. He said, quote,
Speaker 3: this is quite extraordinary. Powell steps down and Trump nominates
Speaker 3: his success for only months from now. It's hard to
Speaker 3: see the point of this. Even if there were a
Speaker 3: study basis for prosecution, is it possible for you to
Speaker 3: see what the point of this is? Given the timeline
Speaker 3: that John laid out.
Speaker 1: There, Well, there's no doubt it's very damaging optically for
Speaker 1: the policy making process in the US. David, I mean,
Speaker 1: if you're looking at this from the outside, the FED
Speaker 1: is this pre eminent institution. It's independent, as we've been discussing,
Speaker 1: and it's meant to set the rules of the road
Speaker 1: based on month the economy needs, not on politics. That's
Speaker 1: important not just for the US but the rest of
Speaker 1: the world. But now, of course we have the situation
Speaker 1: whereby it looks like a fairly deliberate attack on share
Speaker 1: Powell himself through using the root of what's going on
Speaker 1: with the building site and the costover runs there. And
Speaker 1: of course, how will that impact the internal freed dynamic?
Speaker 1: I mean, when the new FED chair takes over, will
Speaker 1: the rest of the committee be willing to cooperate with
Speaker 1: him or horror, or will they view that person as
Speaker 1: very deliberately political? And will the new FED chair have
Speaker 1: trouble convincing the rest of the FED team that is
Speaker 1: on their side? For example, there's a question mark? Is
Speaker 1: the question mark now over Chair Powell? I mean, I
Speaker 1: think a lot of people would have thought he'd move on,
Speaker 1: but will he now stay for a little while in
Speaker 1: a deliberate attempt to push back against the administration. So, I
Speaker 1: think in terms of the optics the policy making process,
Speaker 1: this idea that this is really unprecedent and now political
Speaker 1: assault on the FED, I think that raises a lot
Speaker 1: of question marks over what happens next, how this process
Speaker 1: plays out, and the reputational damage that it leaves both
Speaker 1: on the FED and I think the US policy making process.
Speaker 3: There is this conversation about what FED Chair Powell does
Speaker 3: in the medium to long term. In the nearer term,
Speaker 3: there's another FED meeting just days from now. What did
Speaker 3: he say just about what's going to happen in the
Speaker 3: coming days versus the coming months and years.
Speaker 1: Well, he didn't comment on monetary policy in his statement
Speaker 1: and video last night, David, I think most people following
Speaker 1: this would say, this isn't really going to impact the
Speaker 1: near term path for moneged policy in Chair Powell, whether
Speaker 1: you or not, and the FMC committee have been setting
Speaker 1: policy based on the other reasoning they set out for it,
Speaker 1: which is they've been cutting rates because they're worried about
Speaker 1: the employment market. Would have been cutting fast enough. Courting
Speaker 1: to President Trump that story probably won't change near term,
Speaker 1: but then you know, you go a few months out
Speaker 1: from nine, if we have that new FED chair arriving
Speaker 1: on the board as I mentioned, then does that FED
Speaker 1: chair committed or saying we need lower interest rates at
Speaker 1: a time when the rest of the FMC committee or
Speaker 1: maybe a skeptical about the need for lower interest rates
Speaker 1: and b they're already smarting over it's extraordinaryssault on the FED.
Speaker 1: I mean, that's where things will get complicated pretty quickly.
Speaker 1: So we're in for I think a very uncertain few
Speaker 1: months ahead.
Speaker 2: I have served at the Federal Reserve under four administrations,
Speaker 2: Republicans and Democrats alike. In every case, I have carried
Speaker 2: out my duties without political fear or favor, focused solely
Speaker 2: on our mandate of price stability.
Speaker 3: Who is the audience for that statement from FED Chair Jerome.
Speaker 4: Pal Do you think I think he went directly to
Speaker 4: the American people? The message is different this time, right.
Speaker 4: It's not We're just going to do our jobs and
Speaker 4: keep our heads down. It's Look, you all need to
Speaker 4: understand that these subpoenas are directly related to the President
Speaker 4: trying to bend this institution to his will and I
Speaker 4: think he wanted the American people to know that and to.
Speaker 2: Hear that public service sometimes requires standing firm in the
Speaker 2: face of threats. I will continue to do the job
Speaker 2: the said confirmed me to do with integrity and a
Speaker 2: commitment to serving the American people.
Speaker 1: Thank you.
Speaker 3: This is the Big Take from Bloomberg News. I'm David
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Speaker 3: Thanks for listening. We'll be back tomorrow.