1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:07,880 --> 00:00:10,360 Speaker 2: We want to bring in Lale Brainerd, former director of 3 00:00:10,400 --> 00:00:13,840 Speaker 2: the National Economic Council under the Biden administration, for our 4 00:00:13,960 --> 00:00:17,120 Speaker 2: vice Chair of the Federal Reserve, now distinguished fellow at 5 00:00:17,120 --> 00:00:20,200 Speaker 2: the Georgetown Center for Financial Markets and Policies. Laiel, thank 6 00:00:20,280 --> 00:00:22,759 Speaker 2: you so much for joining Bloomberg. I just want to 7 00:00:22,760 --> 00:00:25,159 Speaker 2: pick up on this conversation. President Trump says he's not 8 00:00:25,239 --> 00:00:28,080 Speaker 2: going to fire Jerome Powell. So is this just all 9 00:00:28,080 --> 00:00:30,360 Speaker 2: about trying to see lower rates next week when the 10 00:00:30,440 --> 00:00:31,240 Speaker 2: FMC meets. 11 00:00:31,680 --> 00:00:35,360 Speaker 3: There's probably a few things that are going on. 12 00:00:35,360 --> 00:00:41,599 Speaker 4: One. I think it is an effort to pressure the 13 00:00:41,640 --> 00:00:43,519 Speaker 4: Federal Reserve for lower rates. 14 00:00:44,120 --> 00:00:45,240 Speaker 3: It's also a distraction. 15 00:00:45,920 --> 00:00:48,880 Speaker 4: You know, that was a picture for the Ages yesterday, 16 00:00:49,320 --> 00:00:53,040 Speaker 4: the President standing next to the chairman of the Federal 17 00:00:53,080 --> 00:00:54,600 Speaker 4: Reserve wearing hard hats. 18 00:00:55,320 --> 00:00:58,080 Speaker 3: Quite a story, and. 19 00:00:58,000 --> 00:01:04,920 Speaker 4: It also serves to find a place to have blame 20 00:01:05,720 --> 00:01:08,920 Speaker 4: to the extent that the economy is not as strong 21 00:01:09,080 --> 00:01:11,400 Speaker 4: as the President has said that it would be at 22 00:01:11,440 --> 00:01:15,279 Speaker 4: this juncture. You heard him say that the Federal Reserve 23 00:01:15,319 --> 00:01:18,400 Speaker 4: should be lowering rates, and that's the only thing standing 24 00:01:18,560 --> 00:01:21,960 Speaker 4: in the way. So I think it does serve multiple 25 00:01:22,000 --> 00:01:25,839 Speaker 4: purposes in terms of the storyline. 26 00:01:26,520 --> 00:01:27,440 Speaker 3: But we also know. 27 00:01:27,480 --> 00:01:32,600 Speaker 4: That Federal Reserve chairs go down in history for actually 28 00:01:32,680 --> 00:01:36,960 Speaker 4: following their mandate and not caving to political pressure, and 29 00:01:37,040 --> 00:01:40,160 Speaker 4: those that do cave to political pressures tend not to 30 00:01:40,200 --> 00:01:44,160 Speaker 4: be viewed very favorablely in the history books. 31 00:01:45,360 --> 00:01:46,759 Speaker 1: Lell it's great to have you with us. I want 32 00:01:46,760 --> 00:01:48,440 Speaker 1: to ask you about the op ed that you wrote 33 00:01:48,680 --> 00:01:51,560 Speaker 1: recently in the Washington Post, an opinion piece with the 34 00:01:51,600 --> 00:01:55,400 Speaker 1: headline the real reason Trump wants to fire the FED Chair? 35 00:01:55,960 --> 00:01:58,920 Speaker 1: You say it has everything to do with debt management. 36 00:01:59,000 --> 00:02:01,000 Speaker 1: The President, you're right, one, wants to reduce the debt 37 00:02:01,040 --> 00:02:03,680 Speaker 1: service on the trillions his megabill will add to the 38 00:02:03,760 --> 00:02:06,560 Speaker 1: national debt. So now we're connecting the dots to the 39 00:02:06,600 --> 00:02:09,120 Speaker 1: President's big, beautiful bill. The fact is, and you say 40 00:02:09,120 --> 00:02:11,720 Speaker 1: this in your piece, they are saying it out loud. 41 00:02:11,960 --> 00:02:12,200 Speaker 2: Lael. 42 00:02:12,240 --> 00:02:14,639 Speaker 1: Peter Navarro sat right at this desk a couple of 43 00:02:14,760 --> 00:02:17,960 Speaker 1: days ago and talked about the need to lower infrastrates 44 00:02:18,320 --> 00:02:20,960 Speaker 1: in an effort to save a trillion dollars when it 45 00:02:21,040 --> 00:02:25,200 Speaker 1: comes to our debt. Is this the new Mission Creep? 46 00:02:25,240 --> 00:02:28,200 Speaker 1: We hear a lot about Mission Creep in the Central Bank. 47 00:02:28,720 --> 00:02:30,480 Speaker 1: Is this a version of that in your eyes? 48 00:02:31,720 --> 00:02:38,200 Speaker 4: Well, certainly this is the kind of diversion of the 49 00:02:38,200 --> 00:02:44,600 Speaker 4: Federal Reserve from its core inflation fighting mission to supporting 50 00:02:44,800 --> 00:02:49,760 Speaker 4: the administration's desire to finance this big new increase in 51 00:02:49,800 --> 00:02:55,560 Speaker 4: the national debt cheaply. That is traditionally the way that 52 00:02:55,639 --> 00:03:00,600 Speaker 4: central banks in other countries like Brazil or Turkey Aregentina 53 00:03:01,240 --> 00:03:05,680 Speaker 4: go awry and lose that credibility on inflation fighting. So 54 00:03:06,320 --> 00:03:09,040 Speaker 4: I have to say that I was surprised to hear 55 00:03:09,080 --> 00:03:13,079 Speaker 4: the President say it out loud when he says every 56 00:03:13,120 --> 00:03:17,680 Speaker 4: percentage point reduction in interest rates translates into three hundred 57 00:03:17,680 --> 00:03:21,640 Speaker 4: billion dollars. What he's talking about is interest payments on 58 00:03:21,840 --> 00:03:25,560 Speaker 4: the national debt. And when he says, you know, if 59 00:03:25,600 --> 00:03:29,240 Speaker 4: the Fed will cut by three percentage points down to 60 00:03:29,440 --> 00:03:33,520 Speaker 4: one percentage point, that'll save us a trillion dollars in 61 00:03:33,600 --> 00:03:37,320 Speaker 4: debt service, that's what he's really referring to, and he 62 00:03:37,440 --> 00:03:41,160 Speaker 4: said it quite explicitly, And economists have a term for 63 00:03:41,240 --> 00:03:45,600 Speaker 4: it because it has happened so many times in history. 64 00:03:45,640 --> 00:03:50,560 Speaker 4: It's called fiscal dominance. When debt management becomes more important 65 00:03:50,840 --> 00:03:54,480 Speaker 4: for the central bank than fighting inflation and what happens 66 00:03:54,520 --> 00:03:58,280 Speaker 4: is you lose control of inflation and ultimately long term 67 00:03:58,320 --> 00:04:00,200 Speaker 4: interest rates actually go up. 68 00:04:01,920 --> 00:04:04,320 Speaker 2: Well, we did actually get a different sort of answer 69 00:04:04,320 --> 00:04:06,680 Speaker 2: when we posed this question to Jill Lavarni, a senior 70 00:04:06,720 --> 00:04:09,720 Speaker 2: counselor to the Treasury Secretary Scott Best, and about concerns 71 00:04:09,720 --> 00:04:12,520 Speaker 2: when it comes to the long end of the yield curve. 72 00:04:12,600 --> 00:04:15,080 Speaker 2: He joined us on Balance of Power last week. I 73 00:04:15,080 --> 00:04:16,800 Speaker 2: want to play you with some of his reaction and 74 00:04:16,800 --> 00:04:19,080 Speaker 2: then get your reaction on the other side. 75 00:04:19,920 --> 00:04:21,919 Speaker 5: I don't see how markets are going to be worried 76 00:04:21,920 --> 00:04:24,839 Speaker 5: about that. In fact, if you look at where yields are, 77 00:04:24,880 --> 00:04:27,279 Speaker 5: they're lower than where they started the year. And when 78 00:04:27,320 --> 00:04:29,200 Speaker 5: a lot of the people who are worried about the 79 00:04:29,240 --> 00:04:31,800 Speaker 5: markets selling off because the credibility and things of that sort, 80 00:04:32,200 --> 00:04:34,119 Speaker 5: these are many the same folks who back in April 81 00:04:34,120 --> 00:04:37,239 Speaker 5: said the US was uninvestable, and yet we had Treasury 82 00:04:37,279 --> 00:04:40,120 Speaker 5: data that came out today that should essentially record inflow 83 00:04:40,120 --> 00:04:43,160 Speaker 5: into the market with treasury demand virtually at an all 84 00:04:43,240 --> 00:04:46,480 Speaker 5: time high. So these arguments I don't think hold up 85 00:04:46,520 --> 00:04:48,120 Speaker 5: to really scrutiny into the facts. 86 00:04:50,279 --> 00:04:52,680 Speaker 2: We should say that A response was last week on 87 00:04:52,760 --> 00:04:55,760 Speaker 2: July seventeenth. But Leo, I'm wondering what you make of 88 00:04:55,800 --> 00:04:57,560 Speaker 2: that defense when it comes to this issue. 89 00:04:58,760 --> 00:05:02,000 Speaker 4: Well, what we did see when the markets were really 90 00:05:02,040 --> 00:05:09,520 Speaker 4: reacting to news that this administration would really pressure the 91 00:05:09,560 --> 00:05:13,159 Speaker 4: Federal Reserve and might fire the chair of the Federal 92 00:05:13,200 --> 00:05:15,320 Speaker 4: Reserve back in April, that was the first time I 93 00:05:15,320 --> 00:05:18,640 Speaker 4: think market participants really were digesting that news, and there 94 00:05:18,720 --> 00:05:21,920 Speaker 4: was a lot of repositioning, as you'll recall, And what 95 00:05:22,000 --> 00:05:24,000 Speaker 4: we saw is that the long end of the curve 96 00:05:24,080 --> 00:05:27,200 Speaker 4: did actually go up quite a bit and the dollar weekend. 97 00:05:27,240 --> 00:05:30,839 Speaker 4: That is the kind of response that you tend to 98 00:05:30,880 --> 00:05:35,960 Speaker 4: see in circumstances where central banks lose credibility on the 99 00:05:35,960 --> 00:05:42,599 Speaker 4: fight against inflation because investors demand more compensation to hold 100 00:05:42,680 --> 00:05:47,719 Speaker 4: longer term securities, sovereigns securities, treasury securities if they think 101 00:05:47,760 --> 00:05:51,160 Speaker 4: that the currency is going to be weaker and inflation 102 00:05:51,640 --> 00:05:53,839 Speaker 4: is going to go up. So that is just the 103 00:05:53,880 --> 00:05:57,240 Speaker 4: traditional kind of market reaction we have seen it. We 104 00:05:57,320 --> 00:06:01,480 Speaker 4: certainly saw it back in April. Now leave markets, I 105 00:06:01,520 --> 00:06:04,599 Speaker 4: have seen the President back down say that he's not 106 00:06:04,760 --> 00:06:08,880 Speaker 4: going to fire the Federal Reserve chair. Yesterday he was 107 00:06:09,040 --> 00:06:12,680 Speaker 4: even somewhat complimentary, and I think that's why you're not 108 00:06:12,800 --> 00:06:16,200 Speaker 4: seeing those kinds of reactions right now in markets. But 109 00:06:16,720 --> 00:06:19,600 Speaker 4: I do think the reaction we saw in April was 110 00:06:19,640 --> 00:06:21,040 Speaker 4: a cautionary tale. 111 00:06:22,120 --> 00:06:24,640 Speaker 1: It did seem the President came fixing for a bit 112 00:06:24,640 --> 00:06:27,200 Speaker 1: of a fight yesterday, Leale. I'm sure you were watching 113 00:06:27,600 --> 00:06:30,240 Speaker 1: as the two wore hard hats. The President pulled a 114 00:06:30,279 --> 00:06:33,440 Speaker 1: piece of paper out of his suit jacket to prove 115 00:06:33,520 --> 00:06:36,440 Speaker 1: to the Fed chair that not only was the renovation 116 00:06:37,000 --> 00:06:41,640 Speaker 1: at the Echoes Building running over in terms of money, 117 00:06:41,680 --> 00:06:43,840 Speaker 1: but more than he thought, and he added a whole 118 00:06:43,839 --> 00:06:46,200 Speaker 1: new building to the list. Let's bring everybody back to 119 00:06:46,240 --> 00:06:47,839 Speaker 1: the construction site. Watch and listen. 120 00:06:48,640 --> 00:06:51,000 Speaker 4: It looks like it's about three point one billion, one 121 00:06:51,080 --> 00:06:52,720 Speaker 4: up a little bit for a lot. 122 00:06:53,839 --> 00:06:56,599 Speaker 1: So the two point seven is now three point one. 123 00:06:57,960 --> 00:07:01,720 Speaker 5: Yeah, it just came out. I haven't heard that from 124 00:07:01,760 --> 00:07:03,640 Speaker 5: anybody that you're including the Martin renovation. 125 00:07:03,760 --> 00:07:05,279 Speaker 3: You just added into third buildings. 126 00:07:05,279 --> 00:07:05,800 Speaker 2: What that is? 127 00:07:05,839 --> 00:07:06,640 Speaker 5: That's a third building. 128 00:07:07,440 --> 00:07:09,920 Speaker 3: It's a building that's being built, it's been it was 129 00:07:10,040 --> 00:07:11,000 Speaker 3: built five years ago. 130 00:07:11,000 --> 00:07:12,960 Speaker 1: Well, I'd love him to lower interest, Rachel. 131 00:07:14,120 --> 00:07:15,640 Speaker 3: Other than that, what can I tell you? 132 00:07:16,640 --> 00:07:20,720 Speaker 1: Complete with a knock on the back there, Lail I'm wondering, 133 00:07:21,160 --> 00:07:23,400 Speaker 1: as you watched this and had a chance to digest 134 00:07:23,440 --> 00:07:27,000 Speaker 1: everything that happened yesterday, does this go down as a 135 00:07:27,040 --> 00:07:28,760 Speaker 1: good day for fed independence. 136 00:07:30,920 --> 00:07:34,400 Speaker 4: Well, I think what was interesting is that the Federal 137 00:07:34,440 --> 00:07:38,520 Speaker 4: Reserve had a chance to explain what was going on 138 00:07:39,000 --> 00:07:41,560 Speaker 4: with their renovations. 139 00:07:42,240 --> 00:07:44,000 Speaker 3: These are very old buildings. 140 00:07:44,800 --> 00:07:47,840 Speaker 4: They have two buildings that really haven't been renovated I 141 00:07:47,840 --> 00:07:50,840 Speaker 4: think since the nineteen thirties and one that just was 142 00:07:50,880 --> 00:07:54,200 Speaker 4: renovated for the first time since the nineteen seventies. And 143 00:07:54,800 --> 00:07:57,760 Speaker 4: I thought what was interesting is that the President really 144 00:07:57,800 --> 00:08:03,240 Speaker 4: came out of those discussions, you know, really showing his 145 00:08:03,520 --> 00:08:06,080 Speaker 4: long experience as a real estate developer. You know, he 146 00:08:06,600 --> 00:08:11,360 Speaker 4: talked about how hard it is to build on a 147 00:08:11,360 --> 00:08:17,280 Speaker 4: former swamp and the kind of very expensive renovations that 148 00:08:17,360 --> 00:08:23,120 Speaker 4: are necessary to you know, really be secure in pushing 149 00:08:24,120 --> 00:08:28,120 Speaker 4: down when there are concerns about the water table. So 150 00:08:28,560 --> 00:08:30,640 Speaker 4: in a way, it was interesting to see the President 151 00:08:31,080 --> 00:08:35,880 Speaker 4: getting into the complexities of the renovation in that sense. Yes, 152 00:08:35,960 --> 00:08:40,880 Speaker 4: I think it was a good day just for transparency 153 00:08:41,480 --> 00:08:44,080 Speaker 4: around the Federal Reserve, which is so important because the 154 00:08:44,120 --> 00:08:47,040 Speaker 4: Federal Reserve has to be accountable to the public. 155 00:08:49,000 --> 00:08:51,160 Speaker 2: Well, I do want to go back to this idea 156 00:08:51,160 --> 00:08:53,640 Speaker 2: of so called mission creep that Joe had mentioned earlier. 157 00:08:53,640 --> 00:08:57,080 Speaker 2: We've heard this critique from Treasury Secretary Scott Besson, from 158 00:08:57,160 --> 00:08:59,840 Speaker 2: Kevin Worris, who we know is potentially in the running 159 00:08:59,880 --> 00:09:01,880 Speaker 2: to be the next FED chair. Do you think that 160 00:09:01,920 --> 00:09:04,600 Speaker 2: it would be healthy for the FED to conduct a 161 00:09:04,640 --> 00:09:08,520 Speaker 2: review of its non monetary policy activities? Is that something 162 00:09:08,559 --> 00:09:10,080 Speaker 2: that you think would actually be a good thing for 163 00:09:10,120 --> 00:09:12,640 Speaker 2: the FED to look into, whether or not that's an 164 00:09:12,720 --> 00:09:14,480 Speaker 2: external review, for example. 165 00:09:15,720 --> 00:09:20,360 Speaker 4: So I always think that the Federal Reserve benefits from 166 00:09:20,679 --> 00:09:23,559 Speaker 4: being accountable and transparent to the. 167 00:09:23,559 --> 00:09:26,920 Speaker 3: Public and particularly to Congress. 168 00:09:26,960 --> 00:09:29,600 Speaker 4: And it's really Congress who has oversight of the Federal 169 00:09:29,640 --> 00:09:33,560 Speaker 4: Reserve who wrote the Federal Reserve Act that governs the 170 00:09:33,600 --> 00:09:36,959 Speaker 4: monetary policy and the Dodd Frank Act that governs their 171 00:09:37,000 --> 00:09:42,600 Speaker 4: responsibilities in financial stability policy. So I do think those 172 00:09:42,720 --> 00:09:46,880 Speaker 4: kinds of reviews are very beneficial, and there are many 173 00:09:46,960 --> 00:09:50,439 Speaker 4: mechanisms that the Federal Reserve could use to undertake such 174 00:09:50,480 --> 00:09:51,480 Speaker 4: a review. 175 00:09:52,280 --> 00:09:52,840 Speaker 3: The thing that. 176 00:09:52,760 --> 00:09:56,680 Speaker 4: Would concern me I have heard the Secretary of the 177 00:09:56,720 --> 00:10:02,439 Speaker 4: Treasury saying that the administration would undertake a review, and 178 00:10:02,960 --> 00:10:04,880 Speaker 4: that does raise some concerns. 179 00:10:04,960 --> 00:10:07,360 Speaker 1: Well, I'm sorry, we're out of time. Sorry, I'd love 180 00:10:07,400 --> 00:10:09,800 Speaker 1: to have you come back to finish this conversation. It's 181 00:10:09,800 --> 00:10:11,959 Speaker 1: wonderful to have you back on balance of power. Former 182 00:10:12,000 --> 00:10:15,120 Speaker 1: director National Economic Council, former vice Chair of the Federal 183 00:10:15,160 --> 00:10:18,080 Speaker 1: Reserve Laalel Brainerd whether us live from Washington, Only here 184 00:10:18,120 --> 00:10:19,680 Speaker 1: on Bloomberg TV and radio.