Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Less than forty eight hours after the presidential election was
Speaker 2: called for Donald Trump, Federal Reserve Chair Jerome Powell announced
Speaker 2: the Central Bank's latest rate cut.
Speaker 3: At today's meeting, The committee decided to lower the target
Speaker 3: range for the federal funds rate by a quarter percentage point.
Speaker 2: That was supposed to be the news of the day.
Speaker 2: Stocks were up after all, even if most people watching
Speaker 2: the Fed closely expected it, But the moment that raised
Speaker 2: eyebrows had nothing to do with the rate cut. Multiple
Speaker 2: reporters asked Powell about how he would respond to a
Speaker 2: US president trying to replace him, something Trump had looked
Speaker 2: into in his first term.
Speaker 1: Some of the president's elects advisors have suggested that you
Speaker 1: should resign.
Speaker 3: If he asked you to leave, would you go?
Speaker 2: No?
Speaker 3: Do you think that legally you're not required to leave? No?
Speaker 1: Do you believe the president has a power to fire
Speaker 1: or demote you? And it has the FED determined the
Speaker 1: legal body of a president demoting at will any of
Speaker 1: the other governors with leadership positions not.
Speaker 3: Permitted under the law. This was a pretty stunning moment.
Speaker 2: For months on the campaign trail and throughout his first presidency,
Speaker 2: Trump has been critical of the FED, and he said
Speaker 2: that he might try to influence the Central Bank's decision making.
Speaker 2: Powell's answers today set up a rematch, a renewed power
Speaker 2: struggle over the Fed's mission and independence between the world's
Speaker 2: most influential central banker and the world's most powerful president
Speaker 2: that will loom large in the coming months and possibly years. Today,
Speaker 2: on the show How the Federal Reserve is gearing up
Speaker 2: to navigate the tricky political road of a second Trump term,
Speaker 2: I spoke with Kate Davidson, Bloomberg's managing editor for US
Speaker 2: Economic Policy, about how the world's most powerful central bank
Speaker 2: is expected to protect its independence with a president that
Speaker 2: seems determined to pull it into the political fray. From
Speaker 2: Bloomberg's Washington bureau. Is the Big Take DC podcast, I'm
Speaker 2: Salamosen So, Kate, there was a standout moment in today's
Speaker 2: press conference.
Speaker 3: What happened? Yeah, this was a pretty stunning moment. A
Speaker 3: reporter asked Jay Powell about the idea that President elect
Speaker 3: Trump could ask him to resign and what would he
Speaker 3: do if he got that request? Would he step down?
Speaker 3: And he answered with one very forceful word no. And
Speaker 3: there was a follow up question and it was, you know, essentially,
Speaker 3: do you think that legally you're not required to? And
Speaker 3: he said again no, And that was that was basically
Speaker 3: the the uh, you know, the end of that exchange.
Speaker 3: It was pretty remarkable and I think that it was
Speaker 3: laying down a clearer marker two days after the reelection
Speaker 3: of the former president, who had sparred very openly with
Speaker 3: j Powell in his first term, saying, you know, essentially,
Speaker 3: I'm not going anywhere.
Speaker 2: So the reelection of Trump is going to put an
Speaker 2: even bigger spotlight on the FED. Tell me why that is?
Speaker 3: Sure? So there's an elect Trump. In his first term
Speaker 3: he was in the White House, he was not shy
Speaker 3: about sharing his feelings about the FED and about his nominee.
Speaker 3: He nominated Jay Powell and pretty soon after seemed to
Speaker 3: maybe have some regrets.
Speaker 2: About that decision and called him a bonehead.
Speaker 3: He had a lot of spicy things to say about
Speaker 3: the FED chair. I mean, he was very explicitly pushing
Speaker 3: the FED to lower rates and then when they began
Speaker 3: that process at the time, pushing them to go faster
Speaker 3: and further. As president, he wanted a stronger economy. He
Speaker 3: wanted a stronger growth, and he wanted the FED to
Speaker 3: help him in that effort, and was frustrated that essentially,
Speaker 3: the FED, I think would seem looking back, did what
Speaker 3: they say that they usually do, which is ignore all
Speaker 3: of it.
Speaker 2: So Trump actually explored whether he could fire or demote
Speaker 2: Powell from his position as chair.
Speaker 3: Tell me how did the.
Speaker 2: FED respond to pressure from Trump during that first term.
Speaker 2: I think it did raise a lot of questions, certainly
Speaker 2: outside of the building, about how bothered are policymakers, how
Speaker 2: bothered is Jay Powell by this?
Speaker 3: Right? Is the FED starting to get anxious and nervous
Speaker 3: about this? I mean, they to play it very straight
Speaker 3: and won't comment on this, but internally we know that
Speaker 3: they looked into at least this question. I think at
Speaker 3: the times Leah you had reported, a FED spokesperson at
Speaker 3: the time said that there's not really it doesn't appear
Speaker 3: to be any sort of legal justification for firing the
Speaker 3: FED chair. So clearly FED lawyers were paying attention and
Speaker 3: we're looking into this. But when it came down to
Speaker 3: the policy decisions that the FED made, I think, apart
Speaker 3: from maybe some small criticism about could they have gone
Speaker 3: sooner or later. Just did they delay any decision making
Speaker 3: because of this? I think broadly the view was no,
Speaker 3: they didn't. They basically set it aside. J Powell kind
Speaker 3: of stuck to the script, avoided questions about Trump, avoided
Speaker 3: weighing in on the criticism of him, whether he would
Speaker 3: leave early, whether he was worried about his job, any
Speaker 3: of that, and just kept doing their jobs. I mean,
Speaker 3: I will say one other thing behind the scenes, though,
Speaker 3: is he definitely did work very hard to shore up
Speaker 3: his relationships with members of Congress, and he had a
Speaker 3: lot of support from Republicans and that time.
Speaker 2: Years later, I heard randomly that one of the former
Speaker 2: FED chairs, either Ben Bernank or Alan greens Man, sent
Speaker 2: by post a pair of earmuffs to J. Powell saying,
Speaker 2: don't listen in These criticisms of the Fed were something
Speaker 2: Trump kept up during his campaign this year. I've made
Speaker 2: a lot of money.
Speaker 3: I was very successful, and I think I have a
Speaker 3: better instinct than in many cases people that would be
Speaker 3: on the Federal Reserve.
Speaker 2: Or the chairman. So what do you think he was
Speaker 2: hoping to do by making these kinds of remarks while campaigning.
Speaker 3: I think it was essentially putting them unnoticed. When he
Speaker 3: comes into office, he certainly once again will not hesitate
Speaker 3: to share his views and his feelings about where interest
Speaker 3: rates should be. He went even further to say, you know,
Speaker 3: he thinks he should have a say on rates. He
Speaker 3: thinks there's nothing wrong with that. He said, Hey, they
Speaker 3: don't have to listen to me, but I should have
Speaker 3: a right to say I know a lot about this.
Speaker 3: I don't think I should be allowed to order it,
Speaker 3: but I think I have the right to put in
Speaker 3: comments as to whether or not interest rates should go
Speaker 3: up or down. That might seem, I think, to an
Speaker 3: average person, like a reasonable argument that you know, what's
Speaker 3: so bad about the president saying where he thinks interest
Speaker 3: rate should be. The issue is if we were to
Speaker 3: look at other countries around the world when you see
Speaker 3: and hear this kind of talk, this kind of over
Speaker 3: political pressure, that it can seep into the decisions that
Speaker 3: the policy makers are making. So for a very long time,
Speaker 3: you know, Seleia, there had been a policy in the
Speaker 3: White House, across administrations, across political parties to just not
Speaker 3: go there.
Speaker 2: From the nineties up until Trump, right, just.
Speaker 3: Don't say anything at all about rates or about the
Speaker 3: Central Bank to avoid the risks that there could be
Speaker 3: for even perceived political pressure because markets pay attention to that.
Speaker 2: So we've talked about some of the ways that Trump
Speaker 2: has sought to or talked about breaking tradition and moving
Speaker 2: into the Fed's leane and politicizing the FED. But the
Speaker 2: FED does have guard rails to protect it from political interference.
Speaker 2: Can you tell me about some of those. Sure.
Speaker 3: So one of the key guard rails has to do
Speaker 3: with appointments to the FED Board. So the President nominates
Speaker 3: the officials that serve on the board, and they are
Speaker 3: meant to serve fourteen year terms. The point is that
Speaker 3: these positions don't coincide with presidential election cycles. In other words,
Speaker 3: when a new president is elected, that's not an opportunity
Speaker 3: for him to clean house at the FED. And when
Speaker 3: it comes to the chair in particular, the terms are
Speaker 3: basically meant to and at least a year after a
Speaker 3: new president comes in, those terms are kind of staggered,
Speaker 3: and that's by design. So those are probably the most
Speaker 3: important guardrails. And then to be clear on that, the
Speaker 3: president nominates those officials, but the Senate has to confirm them.
Speaker 3: So otherwise the FED is an independent agency. I mean,
Speaker 3: they don't need the White House to rubber stamp or
Speaker 3: sign off on these rate decisions.
Speaker 2: So with those kinds of protections in place, could he
Speaker 2: really try to push the Fed into setting interest rates
Speaker 2: to suit his political agenda once he's picked his own
Speaker 2: FED chair.
Speaker 3: I think that's the big question, right, I mean, if
Speaker 3: the President were able to install and nominate and get
Speaker 3: support for someone in that role who was willing to
Speaker 3: listen to him, then yes he could. He could in theory,
Speaker 3: influence what the FED does. Of course, the FED chair
Speaker 3: is just one person, but that's a powerful position. I mean,
Speaker 3: the chairman leads the committee, leads the FED Board, but
Speaker 3: also there's a broader committee of decision makers includes the
Speaker 3: presidents of the twelve regional FED banks, and the chair
Speaker 3: of that committee that person is chosen by all of
Speaker 3: those policymakers. So technically, say President Trump were to nominate
Speaker 3: someone to become chairman of the FED Board in Washington,
Speaker 3: had all the supportive Republicans and that person went in,
Speaker 3: they would still need to be chosen as the chair
Speaker 3: by all of their colleagues. So that's one potential check
Speaker 3: on that, but it's a risk, and I think there
Speaker 3: have been some questions about what would that look like.
Speaker 3: When President elect Trump has said he wants to have
Speaker 3: more say, how would that work. Would it be, you know,
Speaker 3: calling up the day before a policy meeting and saying,
Speaker 3: here's what I'd like you to do, and would the
Speaker 3: person and the job listen? Which is tweeting right? I
Speaker 3: mean that will be a very big question in the
Speaker 3: Senate confirmation process for the next nominee to be FED chair.
Speaker 2: For all the Federal Reserves efforts to stay out of politics,
Speaker 2: it's going to have to face the reality of Trump's
Speaker 2: economic agenda coming up. How that could complicate the Fed's
Speaker 2: efforts to tame inflation. What do we know about what
Speaker 2: Trump wants from the Fed? He's unhappy, What does he
Speaker 2: want monetary policy to deliver for him?
Speaker 3: This is a tricky question because obviously before the election,
Speaker 3: he was complaining that the half point rate cut was
Speaker 3: too big. But it was obviously political to use his words.
Speaker 3: Everyone knows that was a political maneuver that they tried
Speaker 3: to do before the election. I think, as we've seen
Speaker 3: with this president that when he is in power, that
Speaker 3: tends to shift his view and he's his opinion on
Speaker 3: these things. Generally speaking, presidents tend to like lower rates.
Speaker 3: So what will he do when he comes into office.
Speaker 3: The FED is already lowering rates. They've started cutting them
Speaker 3: from the very high levels where they'd been to fight
Speaker 3: inflation for the past couple of years. So despite his
Speaker 3: complaints about the half point cut, could he come in
Speaker 3: and complain, Hey, you're not lowering them fast enough. You
Speaker 3: need to go faster, and you need to go bigger.
Speaker 3: I wouldn't be surprised to see that.
Speaker 2: And the reason presidents like low interest rates is because
Speaker 2: it basically juices the economy.
Speaker 3: Yes, yes, to put a finer point on it, it's
Speaker 3: just good for growth. Lower borrowing costs generally helped to
Speaker 3: spur spending by consumers and investments by businesses. But the risk,
Speaker 3: of course, is that when you have too much of that,
Speaker 3: inflation can pick up. And that's you know, we hadn't
Speaker 3: had a high bout of inflation in forty years, and
Speaker 3: the FED is still grappling with the fallout from very
Speaker 3: high inflation of the past few years. And so I
Speaker 3: think that they are going to continue to be very
Speaker 3: cautious about how they approach cuts, and that could lead
Speaker 3: to some natural tension with the incoming president.
Speaker 2: The FED might operate independently from politics, but it will
Speaker 2: have to factor in Trump's economic agenda as it sets
Speaker 2: interest rates. How could some of those proposed policies affect
Speaker 2: the federal reserves efforts to get inflation under control.
Speaker 3: Well, there's a lot that we know about what President
Speaker 3: elect Trump has said he wants to do, but of
Speaker 3: course the devils in the details. A lot will depend
Speaker 3: on the outcoming Congress, but we have a pretty good
Speaker 3: sense of at least the issues that he would prioritize.
Speaker 3: He's been very clear that he would pursue higher tariffs,
Speaker 3: although the amounts could vary right and could depend on
Speaker 3: which countries he goes after. That is something that economists
Speaker 3: se as inflationary. It's essentially a tax that's passed on
Speaker 3: to consumers and by some estimates, could cost American households
Speaker 3: thousands of dollars a year. That could put upward pressure
Speaker 3: on prices, and that's inflation. That's the Fed's job to
Speaker 3: be worried about that issue. So there's that Congress will
Speaker 3: grapple next year with a very big domestic policy issue
Speaker 3: that tax cuts and jobs Act, which was actually passed
Speaker 3: during President Trump's first term and implemented in twenty eighteen.
Speaker 3: That's set to expire large portions of that at the
Speaker 3: end of twenty twenty five. So a big tax cut
Speaker 3: could inject more stimulus into the economy. That's something that
Speaker 3: the FED will have to consider. And this issue of
Speaker 3: immigration or portation. You President Trump has said that he
Speaker 3: would pursue a policy of deporting a number of migrants,
Speaker 3: potentially very large number, and that could affect, you know,
Speaker 3: the labor supply, it could have broader effects on the economy.
Speaker 3: So all of those issues combined have sort of raised
Speaker 3: the potential or the risk that the FED might have
Speaker 3: to approach rate cuts a little more carefully, a little
Speaker 3: more cautiously.
Speaker 2: How soon do you think that we'll see the impact
Speaker 2: of Trump's presidency on the FED. It's a great question,
Speaker 2: and I don't know what the answer is. I do
Speaker 2: think that we expect that the President elect, as he
Speaker 2: did in his first term, will have a lot to
Speaker 2: say about the Fed's decisions. And I think that the
Speaker 2: rest of the Republican Party other members could take a
Speaker 2: similar sort of approach and really scrutinize what they are doing.
Speaker 2: I think that the FED, even though they're very used
Speaker 2: to ignoring political criticism, they do have to answer to
Speaker 2: the public, and I think that it makes it more
Speaker 2: important and perhaps a little trickier for them to explain
Speaker 2: very clearly why they're doing what they're doing. You know,
Speaker 2: when they are facing political blowback, as they potentially will
Speaker 2: from the incoming president, they just have to be that
Speaker 2: much more clear about, well, this is why we're doing
Speaker 2: what we're doing. In other words, it's not for political reasons.
Speaker 2: It's not to help somebody or hurt somebody. It's about
Speaker 2: doing what's best for the economy. That is how they
Speaker 2: will likely explain it. Thanks for listening to The Big
Speaker 2: Take DC podcast from Bloomberg News. I'm Salia Mosen. This
Speaker 2: episode was produced by Julia Press with support from David Fox.
Speaker 2: It was edited by Caitlyn and Kenney. It was mixed
Speaker 2: by Alex Sugia in fact checked by Adriana Tapia. Naomi Shaven,
Speaker 2: who also edited this episode, is our senior producer. Wendy
Speaker 2: Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beevester Bower
Speaker 2: is our executive producer. Sage Bauman is Bloomberg's head of podcasts.
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