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Speaker 1: Bloomberg Audio Studios, podcasts, radio News.

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Speaker 2: Hey, it's Sarah. The United States, as you probably know,

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Speaker 2: is in the middle of a complicated economic moment. The

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Speaker 2: Federal Reserve has been working to bring down inflation without

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Speaker 2: triggering a recession, and that challenge is tricky in an

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Speaker 2: election year. So today I'm turning the mic over to

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Speaker 2: my colleague Saliah Mosen, who has covered the Fed for years.

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Speaker 2: Here's Seleia.

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Speaker 3: Last week, the halls of Congress were a buzz.

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Speaker 4: Committee will come to order.

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Speaker 3: It was a big day for the House Committee on

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Speaker 3: Financial Services.

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Speaker 4: The Federal Reserves semi annual Monetary Policy Report, an inventive

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Speaker 4: title we use semi annually here on the.

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Speaker 3: Committee, in case you missed it. That is a little

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Speaker 3: bit of Federal Reserve style of humor from Committee Chairman

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Speaker 3: Patrick McHenry.

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Speaker 4: I see Chairman, pal smile. It's just three hours.

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Speaker 3: In the hot seat. For those three hours is Room Powell,

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Speaker 3: who doesn't joke around much, and for good reason. He's

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Speaker 3: the chair of the Federal Reserve. His decisions about interest rates,

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Speaker 3: move markets and the entire economy. Not that you'll hear

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Speaker 3: that from him in start contrast to almost everyone else

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Speaker 3: in Washington. Powell shies away from dramatics. He's intentionally kind

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Speaker 3: of boring and tends to downplay the power of the

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Speaker 3: fed's actions. Listen to his response to Gregory Meeks, a

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Speaker 3: New York Democrat.

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Speaker 2: Inface it is also now coming down faster than any

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Speaker 2: place else on the planet, just about Is that not correct?

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Speaker 1: I think that's right.

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Speaker 3: Yeah, Powell's response is pretty bland, But bland is kind

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Speaker 3: of the point for the FED chair. When Powell speaks,

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Speaker 3: markets move, so he doesn't want to be dramatic or

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Speaker 3: declare mission accomplished.

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Speaker 1: We wouldn't be, you know, declaring victory.

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Speaker 3: Like that, or do anything that people might interpret as

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Speaker 3: a hint to what FED policy will look like.

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Speaker 1: In the future.

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Speaker 3: He's special, doesn't want to say anything that might be

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Speaker 3: seen as political, and that puts him in a really

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Speaker 3: tough spot right now, because the US economy is at

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Speaker 3: the center of the twenty twenty four election and the

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Speaker 3: decisions that Powell and the FED may have a powerful

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Speaker 3: effect on the economy that each candidate hopes will hand

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Speaker 3: him the White House. Today on the show, I speak

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Speaker 3: with Bloomberg Fed editor Kate Davidson about the Central Banks

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Speaker 3: politics problem. And the growing pressure on J. Powell.

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Speaker 1: The closer we get to the election in November, we

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Speaker 1: can expect that things are going to get a little spicy.

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Speaker 3: Can the FED battle inflation in the glare of electioneer

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Speaker 3: politics all while maintaining its independence from Bloomberg's Washington bureau.

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Speaker 3: This is the Big Take DC Podcast.

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Speaker 1: I'm Salaiah Mosen.

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Speaker 3: I've covered economic policy for years from the White House, angle,

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Speaker 3: the Treasury Department, Congress, the FED. I even have a

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Speaker 3: book coming out all about the dollar, so I can

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Speaker 3: get pretty wonky. But someone who never gets bored talking

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Speaker 3: policy with me is my colleague Kate Davidson.

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Speaker 1: I lead our Federal Reserve coverage, and honestly, when I

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Speaker 1: first came to Washington and I got into covering the

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Speaker 1: banking industry and regulation after the two thousand and eight

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Speaker 1: financial crisis, I kind of found myself thinking, like, how

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Speaker 1: did I stumble into this? How do I explain this

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Speaker 1: to people? It feels so removed from my everyday life

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Speaker 1: and what seems important to me? But I quickly realized

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Speaker 1: it is so important.

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Speaker 3: Kate was my arch rival at the Wall Street Journal

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Speaker 3: and political for years. We were always competing for scoops,

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Speaker 3: but now we're scooping for the same team, and there's

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Speaker 3: nobody better to break down the job of the Federal Reserve.

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Speaker 1: So the FED is charged with basically managing the economy.

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Speaker 1: And the primary way that the FED affects our lives

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Speaker 1: is by influencing the cost to borrow money.

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Speaker 3: The cost to borrow money as an interest rates. When

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Speaker 3: the FED wants people to spend more, you know, juice

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Speaker 3: the economy, it lowers interest rates, so it's cheaper to borrow.

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Speaker 3: When it's cheaper to borrow, people and businesses spend more,

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Speaker 3: they buy more, invest more. That grows the economy. When

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Speaker 3: the FED raises interest rates, people borrow less, they spend less,

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Speaker 3: and the economy slows down.

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Speaker 1: So credit card rates, auto loans, mortgages, all of these

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Speaker 1: things are influenced by the rate that the FED sets.

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Speaker 3: Now, one thing that you said was a little bit confusing.

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Speaker 3: Why would the Fed want to slow down a consumer

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Speaker 3: driven economy.

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Speaker 1: Yeah, well, it all goes back to inflation.

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Speaker 3: Inflation meaning price is rising. The FED likes to see

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Speaker 3: prices rise at a predictable rate a little bit every year.

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Speaker 3: It means the economy is healthy. But over the last

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Speaker 3: few years, prices have risen a lot. When inflation gets

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Speaker 3: too high, it's bad for the economy and for people.

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Speaker 3: Higher prices mean each dollar you earn buys you less.

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Speaker 3: That's why your grosser bill has been so much higher recently.

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Speaker 3: To bring prices down, meaning slow inflation, the central Bank's

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Speaker 3: main tool interest.

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Speaker 1: Rates, and so really the primary tool the FED has

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Speaker 1: with interest rates is to try to what they say

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Speaker 1: is cool demand, is to slow down spending. That's really

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Speaker 1: the whole game for the Fed. They have to try

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Speaker 1: to discourage people from spending money.

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Speaker 3: Between March of twenty twenty two and July of twenty

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Speaker 3: twenty three, the FED raised interest rates eleven times. That

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Speaker 3: brought down prices, but it also slowed the economy. And

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Speaker 3: many economists saw this and said the Fed is going

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Speaker 3: to trigger a recession. But that recession never came. And

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Speaker 3: now those same economists are saying that j. Powell and

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Speaker 3: the Fed have pulled off a so called soft.

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Speaker 1: Landing, trying to make sure inflation comes all the way

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Speaker 1: back down to a level they think is appropriate for

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Speaker 1: healthy economy without causing a big downturn in the labor market,

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Speaker 1: without having tons of layoffs.

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Speaker 3: Not everyone's convinced the economy is working for them. So far,

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Speaker 3: unemployment in the US is near record lows and prices

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Speaker 3: have come down a lot. A soft landing would be

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Speaker 3: a big win for Powell.

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Speaker 1: He's an interesting guide. He's not an economist. You know,

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Speaker 1: a lot of FED leaders typically have been these PhD economists,

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Speaker 1: and J Powell as a lawyer, he kind of stumbled

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Speaker 1: into this role. As a FED governor. He had played

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Speaker 1: a really pivotal role during the debt sealing crisis in

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Speaker 1: twenty thirteen. He was seen as someone who could reach

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Speaker 1: out to Republicans on Capitol Hill and explain to them

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Speaker 1: why it would be a terrible thing for financial markets

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Speaker 1: if we were to breach the debt ceiling.

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Speaker 3: Powell has been working at the Federal Reserve for years.

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Speaker 3: He was nominated as chair in twenty seventeen by President

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Speaker 3: Trump and then confirmed by the Senate, and President Biden

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Speaker 3: kept him in that role when he took office. He

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Speaker 3: seems to be really well liked by a lot of people.

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Speaker 1: I think he's pretty even keeled, and I think that

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Speaker 1: people really appreciate that he's pretty plain spoken because he's

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Speaker 1: not an economist, so he tries to explain things very simply,

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Speaker 1: and he I think realizes that he's speaking to the

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Speaker 1: American people. He's speaking of financial markets, of course, and

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Speaker 1: that's really important, but he doesn't lean into these very

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Speaker 1: complicated economic ideas.

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Speaker 3: Doesn't he play the electric guitar?

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Speaker 1: Yeah, he plays the guitar. He's a big grateful Dead fan.

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Speaker 1: He was spotted at a concert in the Washington area

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Speaker 1: last summer at a Dead and Company show. He was

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Speaker 1: asked about it when he was testifying on Capitol Hill.

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Speaker 2: Oh, it was terrific.

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Speaker 1: What can I say? So it was great. I've been

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Speaker 1: a grateful Dead fan for fifty years.

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Speaker 3: Is he in touch with the average American? Because I

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Speaker 3: know he's a member of a couple of country clubs

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Speaker 3: or exclusive clubs that have like twenty fifty thousand year entries.

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Speaker 1: And that's sort of the knock on him, right, He

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Speaker 1: is a Beltway inside. Or he might say he went

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Speaker 1: to Georgetown Prep in Washington, which is where Neil Gorsich

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Speaker 1: and Brett Kavanaugh also went to school. I mean he

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Speaker 1: worked at the Carlisle Group. He certainly is very wealthy

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Speaker 1: and wealthier than most Americans, and so I think that

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Speaker 1: I don't know that you could say he's exactly relatable,

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Speaker 1: but he tries.

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Speaker 3: So Powell is dealing with the economy, but the economy

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Speaker 3: isn't Powell's only consideration. He is dealing with some political pressures.

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Speaker 3: Can you talk a little bit about what Powell is

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Speaker 3: dealing with in twenty twenty four a presidential electioneer?

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Speaker 1: Sure, so, as if it wasn't hard enough to manage

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Speaker 1: what they call the soft landing, right, kind of layered

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Speaker 1: on top of that is this election. The Fed and J.

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Speaker 1: Powell will always say, and they emphasize over and over

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Speaker 1: and over again that the election and the politics of

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Speaker 1: these decisions, they are just not a factor. They are

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Speaker 1: looking purely at what's best for the economy.

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Speaker 3: But of course the economy is one of the key

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Speaker 3: indicators of whether an incumbent president will win reelection. For Biden,

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Speaker 3: then it's crucial that the economy stays strong. To a

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Speaker 3: certain extent, He's based his campaign on the triumph of Bidenomics.

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Speaker 1: And yet a lot of polls the voters have more

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Speaker 1: trust in the former president Donald Trump to steer the economy.

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Speaker 1: And so I think that for the Biden White House,

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Speaker 1: they want to see this healthy economy continue.

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Speaker 3: And here's where all the pressure comes in for Powell.

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Speaker 3: Cutting interest rates now would make borrowing easier, boost spending,

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Speaker 3: and give the economy a little kick. Leaving rates where

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Speaker 3: they are could mean parts of the economy plateau or

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Speaker 3: even suffer.

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Speaker 1: Democrats have been saying, hey, it's time to cut rates.

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Speaker 1: Are too high. You're risking the economy. There could be

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Speaker 1: a downturn. But if and when they start cutting rates

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Speaker 1: this year, there will be criticism from the right that

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Speaker 1: they're probably doing it to help Democrats. Right. We did

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Speaker 1: already hear the former president a few weeks back.

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Speaker 3: This is Trump on Fox Business last month.

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Speaker 1: It looks to me like he's trying to lower interest

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Speaker 1: rates for the sake of maybe getting people elected.

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Speaker 3: I don't know. Listen to his tone. It's almost like

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Speaker 3: he's winking at the audience.

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Speaker 4: So you think he's political.

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Speaker 1: He's just going to cut rates to hell lighting it.

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Speaker 3: I think he's politically. In a few other countries, this

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Speaker 3: is actually the way it works. The president or the

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Speaker 3: prime minister can call up the Central Bank and say

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Speaker 3: lower rates. That's an order.

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Speaker 1: Not in the US. That was Congress in nineteen thirteen.

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Speaker 1: The Federal Reserve Acts, so a very long time ago,

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Speaker 1: they established this idea that the FED is independent, there's

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Speaker 1: not meant to be any sort of political influence on

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Speaker 1: the process.

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Speaker 3: Why is the reality and the appearance of independence for

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Speaker 3: the FED so important?

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Speaker 1: Well, I think that they need to be viewed as credible. Right.

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Speaker 3: If politicians can come in and move interest rates around

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Speaker 3: whenever they want, that can really mess with an economy.

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Speaker 3: A central bank's neutrality means it can do things like

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Speaker 3: raise interest rates, which might hurt in the short run,

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Speaker 3: but also prevents inflation from spiraling out of control.

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Speaker 1: There's a lot of research to suggest that countries where

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Speaker 1: there is more political pressure, they tend to have higher

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Speaker 1: inflation over time.

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Speaker 3: So maintaining that independence is good for the economy in

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Speaker 3: a very real way.

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Speaker 1: For sure.

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Speaker 3: When US presidents are supposed to respect that independence, you know,

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Speaker 3: let the central bank do its thing. Which is why

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Speaker 3: it was a little bit shocking when Biden said this

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Speaker 3: at a campaign event in Philadelphia last week.

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Speaker 5: Guess what, I can't guarantee it, but I bet you.

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Speaker 5: I bet you that might come down more because I

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Speaker 5: bet you that that little outfit that sets interest rates

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Speaker 5: it's going to come down.

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Speaker 3: Why do you think he said that I don't know.

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Speaker 1: I certainly was surprised when I saw the alert on

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Speaker 1: my phone or the email traffic in the Bloomberg News

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Speaker 1: run because it is a little bit unusual. It wasn't

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Speaker 1: saying anything controversial. It was more just observing what he

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Speaker 1: thinks is likely. But even still that that's unusual.

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Speaker 3: Unusual and maybe not in a good way. The White

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Speaker 3: House has already had to clean up after Biden's comments.

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Speaker 3: Here's Press Secretary Kareein John Pierre on Tuesday, right.

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Speaker 5: I just want to be really clear, unlike previous presidents,

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Speaker 5: the president does very much believe on the importance of

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Speaker 5: the fit being independent.

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Speaker 3: That the previous president she doesn't want to name is Trump.

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Speaker 3: He broke with a twenty five year tradition of presidents

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Speaker 3: trying to stay out of the Fed's lane. And when

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Speaker 3: that happened in twenty eighteen, Kate and I were both

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Speaker 3: beat reporters who got a front row seat to the theatrics

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Speaker 3: that's coming up. As President Trump broke with the tradition

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Speaker 3: of the executive branch remaining publicly neutral about the actions

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Speaker 3: of the Federal Reserve. My colleague Kate Davidson and I

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Speaker 3: covered it closely.

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Speaker 1: As beat reporters.

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Speaker 3: Do you remember what it was like when we heard

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Speaker 3: that President Trump back then was considering firing J. Powell

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Speaker 3: the sitting FED chair. I mean it was pretty unthinkable, right.

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Speaker 1: He had been complaining about the FED chair pretty openly

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Speaker 1: in a way that reporters and the public and the

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Speaker 1: fedge hadn't seen in many, many many years, in a

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Speaker 1: way maybe they'd ever seen in such a public way.

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Speaker 1: You know, there had been reports and stories of previous

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Speaker 1: administrations maybe reaching out behind the scenes, but this was

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Speaker 1: on Twitter, right.

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Speaker 3: He called J. Powell a bonehead.

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Speaker 1: Yes, I'm trying to think that there was mone you know,

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Speaker 1: he think he said he was like a golfer with

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Speaker 1: no touch, or he couldn't nail the pot or something

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Speaker 1: like that. You know, he had a lot of I mean,

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Speaker 1: it was it was funny, except that it was alarming

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Speaker 1: in some ways. I think then we found out I

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Speaker 1: think it was uselely how that broke that story, right,

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Speaker 1: that that actually, in private, he was really searching for

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Speaker 1: ways to replace the FED chair.

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Speaker 3: Yeah. It ruined a lot of people's Christmases because it

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Speaker 3: was Christmas. Because if a president could meddle in monetary policy,

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Speaker 3: the US dollar, and the entire global economy could be shaken.

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Speaker 3: That story I helped report was the breaking news grinch

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Speaker 3: that stole Christmas that year. It triggered a nearly three

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Speaker 3: percent drop in the S and P five hundred. Immediately,

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Speaker 3: investors everywhere worried that Trump's beef with Powell could put

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Speaker 3: global markets on fragile ground. So Powell has been here before,

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Speaker 3: and now he's doing all he can to reassure people

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Speaker 3: that the FED is not going to be bullied or

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Speaker 3: sway by politicians.

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Speaker 1: I think that's something that's unique about Chair Powells. He's

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Speaker 1: very much aware of where lawmakers are and risks to

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Speaker 1: the FED. I mean, I think he definitely thinks about

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Speaker 1: it from the perspective of risks to the institution, right,

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Speaker 1: and that they don't want to be perceived as leaning

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Speaker 1: one way or the other for political reasons. Of course,

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Speaker 1: And he was on sixty minutes recently, and yeah.

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Speaker 3: He went on sixty minutes. One of the main messages

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Speaker 3: that he had was to assure the public We're not

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Speaker 3: going to be influenced by politics. We're above the fray.

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Speaker 3: Even though it's twenty twenty four, you know.

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Speaker 1: I would just say this integrity is priceless.

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Speaker 3: Notice how he pretty much says the bare minimum at the.

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Speaker 1: End, that's all you have, and we plan on keeping hours.

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Speaker 1: I mean, I feel like that's the quote that's going

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Speaker 1: to be, you know, in his biography one day. I

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Speaker 1: think that's genuinely how he feels. They don't want to

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Speaker 1: risk that.

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Speaker 3: It's unusual for a FED chair to go on primetime

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Speaker 3: to talk about his job. Usually we hear from him

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Speaker 3: at press conferences, meticulously prepared speeches, or at those twice

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Speaker 3: a year hearings. Last week's kicked off with Patrick McHenry,

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Speaker 3: who you heard earlier. He's a North Carolina Republican and

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Speaker 3: chair of the House Financial Services Committee, which oversees the

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Speaker 3: Fed's work. He essentially gave Powell a warning.

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Speaker 4: It's highly inappropriate for lawmakers to attempt to influence monetary policy,

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Speaker 4: jar Pal, I have faith that you will not allow

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Speaker 4: politics to cloud your judgment in the fight to tackle inflation.

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Speaker 3: The way I hear it, this lawmaker is saying, we're

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Speaker 3: watching you. And during the rest of that three hour hearing,

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Speaker 3: Powell was in the hot seat from lawmakers on both

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Speaker 3: sides of the aisle.

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Speaker 1: I think that he've used it as a really important

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Speaker 1: part of his job to be going up there and listening,

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Speaker 1: talking to lawmakers, finding out what their concerns are. I

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Speaker 1: think some lawmakers obviously are frustrated they're hearing from their

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Speaker 1: constituents about, for example, the high cost of housing right now,

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Speaker 1: housing affordability, like.

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Speaker 3: This criticism from Massachusetts Democrat Ayana Presley eat.

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Speaker 5: The FED to start cutting because like the rent, interest

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Speaker 5: rates are too damn high.

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Speaker 3: You can hear Powell try to toe the line as

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Speaker 3: he's under fire. He's really careful not to say anything

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Speaker 3: that could be perceived as political. When Al Green, a

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Speaker 3: Democratic congressman from Texas, prompts Powell to reassure the public

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Speaker 3: that the US has successfully avoided a recession, he doesn't

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Speaker 3: take the bait.

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Speaker 5: Will there would be some official statement that would give

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Speaker 5: people some comfort.

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Speaker 1: I don't think by us, No. I think we're just

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Speaker 1: going to keep our heads down and do our jobs

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Speaker 1: and try to deliver what the public is expecting from us.

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Speaker 1: We wouldn't be, you know, declaring victory like that.

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Speaker 3: Kate Trump, we know, has already talked about getting rid

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Speaker 3: of Powell. You would think someone whose job might disappear

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Speaker 3: soon would take a moment to boast about what they've done.

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Speaker 3: But Powell doesn't do that here. Why not?

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Speaker 1: No, I mean, I just think the idea of announcing

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Speaker 1: mission accomplished is just not in the Fed's DNA as

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Speaker 1: an instant action. It's a good question. I mean, I

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Speaker 1: think they probably would view that as maybe sort of political.

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Speaker 1: He's going to let the politicians, I think, do the

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Speaker 1: talking and say probably as little as possible. There's not

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Speaker 1: going to be a lot of patting himself on the back.

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Speaker 3: It's a tough needle to thread, though, because the economy

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Speaker 3: and politics can't be separated so easily. The Fed's decisions

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Speaker 3: are based in part on economic policies installed by Congress

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Speaker 3: and the executive branch. Part of Powell's job is keeping

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Speaker 3: tabs on those policies. Will there be more or less immigration?

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Speaker 3: And how will that affect the labor market? Will the

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Speaker 3: twenty seventeen tax cuts be renewed by the next administration.

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Speaker 3: All of these policies affect the data that the FED

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Speaker 3: looks at to make decisions that shape the economic fortunes

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Speaker 3: of millions of Americans. So can the FED actually convince

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Speaker 3: the public that it's independent amidst all of this politicking.

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Speaker 1: I mean, they're certainly going to try. The next president,

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Speaker 1: whoever it will be, will play a role in deciding

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Speaker 1: who is going to be the next FED chairman, whether

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Speaker 1: they're going to keep J. Powell, whether they're going to

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Speaker 1: replace him with somebody else. I have no idea if

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Speaker 1: he wants another four years in this job. It's been

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Speaker 1: pretty crazy the time he has been at the HELM.

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Speaker 2: But J.

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Speaker 1: Powell is going to have to contend with a lot

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Speaker 1: of noise from a lot of lawmakers on both sides

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Speaker 1: of the aisle this year.

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Speaker 3: And the closer we get to election day in November,

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Speaker 3: the more the Fed's actions will be put under the microscope.

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Speaker 1: If the FED is cutting rates around that time, we

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Speaker 1: will probably hear from Donald Trump and from others his

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Speaker 1: allies really complaining about this.

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Speaker 3: Meanwhile, the FED isn't out of the woods yet. They

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Speaker 3: still haven't nailed the soft landing, and some people think

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Speaker 3: a recession might still be in the cards.

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Speaker 1: Look, the FED I think was and maybe still isn't

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Speaker 1: a really precarious position. I mean, they've been really successful,

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Speaker 1: fortunately for them and for Powell, in bringing inflation down

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Speaker 1: without this big rise and unemployment. Nobody thought they could

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Speaker 1: do it, so that's been good. But I think they

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Speaker 1: haven't totally finished the job, and that will be I

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Speaker 1: think really important for j Powell personally. It's certainly important

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Speaker 1: for his legacy. It's also about protecting the FED as

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Speaker 1: an institution and sort of making things right, if you will,

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Speaker 1: and showing that the FED might have had some missteps,

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Speaker 1: but that they came in and they did what they

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Speaker 1: needed to do when the moment really clearly demanded it.

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Speaker 3: Until then, we can expect Powell's neutral balancing act to

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Speaker 3: continue as election politics rage around him.

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Speaker 4: And with that, the hearings adjourned.

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Speaker 3: Thanks for listening to the Big Take DC podcast from

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Speaker 3: Bloomberg News. And if you want to geek out more

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Speaker 3: about economic policy and the dollar, I have a book

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Speaker 3: coming out next week. It's called Paper Soldiers, all about

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Speaker 3: the Treasure Department and how it's used the dollar to

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Speaker 3: help secure the US's place in the world. I'm Salaiah Mosen.

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Speaker 3: This episode was produced by Julia Press. It was edited

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Speaker 3: by Stacy Van Nix, Smith and Matt Bosler. It was

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Speaker 3: mixed by Ben O'Brien. It was fact checked by Stacy

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Speaker 3: Renee Naomi Shaven is our senior producer. Michael Shepherd, Wendy

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Speaker 3: Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beemsterbower is

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Speaker 3: our executive producer. Sage Bowman is Bloomberg's head of podcasts.

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Speaker 3: Please subscribe and review The Big Take DC wherever you

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Speaker 3: listen to podcasts. It helps new listeners find the show.

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Speaker 3: Thanks for listening. We'll be back next week.