Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Name one aspect of President Trump's economic agenda with which
Speaker 2: you disagree.
Speaker 3: Well, Senator, the Federal Reserve in recent years has wandered
Speaker 3: outside of its remit, wandered into other something Donald Trump
Speaker 3: on confirmed.
Speaker 2: Just one.
Speaker 4: On Tuesday, Kevin Warrish, President Trump's nominee to be the
Speaker 4: next chair of the Federal Reserve, spoke publicly for the
Speaker 4: first time since being tapped for one of the most
Speaker 4: powerful jobs in the world back in January. He faced
Speaker 4: questions from Senator Elizabeth Warren and other members of the
Speaker 4: Senate Banking Committee in a nomination hearing that explored everything
Speaker 4: from his personal finances to his views on economic policymaking.
Speaker 5: It looks different on TV than it does in person.
Speaker 4: Bloomberg International Economics and Policy correspondent Mike McKee was in
Speaker 4: the room. He says one topic loomed largest the Fed's
Speaker 4: independence from outside political pressure and from the President himself
Speaker 4: or from his.
Speaker 2: Name clear that he does not want an independent FED.
Speaker 2: In fact, he has said, and I quote, anybody that
Speaker 2: disagrees with me will never be FED chairman. And he's
Speaker 2: made clear that you are his sock puppets saying last
Speaker 2: week that interest rates will drop quote when Kevin gets in.
Speaker 5: Yeah, changing a FED chair always leaves open the question
Speaker 5: of where does the FED go from here? And at
Speaker 5: a time when we have a lot of fraught economics
Speaker 5: questions out there, shall we say the war tariffs, the
Speaker 5: overall impact of the President's economic policies. There's a lot
Speaker 5: riding on this.
Speaker 4: With a Republican controlled Senate, it's not so much a
Speaker 4: question of if Kevin Warrish will be confirmed as FED chair,
Speaker 4: but when, and there are still some hurdles in front
Speaker 4: of a vote on the Senate floor. Tuesday's hearing was
Speaker 4: a kind of litmus test for Walsh in the public
Speaker 4: eye as a Trump nominee, and the committee members wanted
Speaker 4: to know from the nominee himself, what would a warsh
Speaker 4: FED look like and would it be able to hold
Speaker 4: its own as an independent entity as Trump puts pressure
Speaker 4: on the FED to cut interest rates?
Speaker 3: Are you going to be the president's human soccer puppet center?
Speaker 3: Absolutely not.
Speaker 4: I'm David Gera and this is the big take from
Speaker 4: Bloomberg News Today. On the show, Kevin Walsh on Capitol Hill,
Speaker 4: what his Senate nomination hearing revealed about his ambitions to
Speaker 4: change the FED and his willingness to stand up to
Speaker 4: the president. Give us a little refresher, if few would
Speaker 4: mike of who Kevin Walsh is. He's somebody who's been
Speaker 4: kind of in and out of government over the last
Speaker 4: few decades. What should we know about him?
Speaker 5: Well, in and out of government is basically the most
Speaker 5: important thing, besides the fact that he comes from the
Speaker 5: financial services industry. Then he went to the White House
Speaker 5: as a member of the National Economic Council before being
Speaker 5: nominated to the Federal Reserve by George W. Bush. And
Speaker 5: he then served until twenty eleven basically as Ben Bernanke's
Speaker 5: right hand man during the crisis. Because of his ties
Speaker 5: to Wall Street, he left and he went to work
Speaker 5: for stan Druck and Miller at Duquane Capital Management and
Speaker 5: has been working for him and also teaching at Stanford
Speaker 5: for the last few years until he was nominated now
Speaker 5: as chair again. So he has a lot of experience
Speaker 5: in the financial world. He also knows a lot of
Speaker 5: people in the tech world because he went to Stanford
Speaker 5: and he is friends with a lot of the people
Speaker 5: that you're talking about every day with Ai and with
Speaker 5: the Silicon Valley world.
Speaker 4: I'm curious sort of what his reputation is more broadly
Speaker 4: among FED policymakers past and present.
Speaker 5: Well, when he was on the FED, he was very
Speaker 5: much a hawk, and he was the one person who
Speaker 5: was advocating for higher interest rates at a time when
Speaker 5: the FED was cutting rates to zero because the economy
Speaker 5: was falling apart in the Great Financial Crisis, and so
Speaker 5: he stood out for that. Once Donald Trump came to
Speaker 5: office in twenty and seventeen and was looking for a
Speaker 5: new FED chair, who ultimately was Jay Powell reappointed. Warsh
Speaker 5: was a candidate, and at that time he started to
Speaker 5: adopt the feathers of a dove, saying that you needed
Speaker 5: to maybe stimulate the economy a little bit more. And
Speaker 5: he became certainly more known for that when COVID hit
Speaker 5: and the FED was cutting rates, and he was in
Speaker 5: favor of that. Now it seems he's sort of in
Speaker 5: the middle. When you listened to him yesterday at the
Speaker 5: Senate Banking Committee hearing, he was talking about the fact
Speaker 5: that he didn't think tariffs were inflationary, which on the
Speaker 5: one hand makes Donald Trump happy.
Speaker 1: Core PCE inflation has been running about three percent, a
Speaker 1: full point above that FED target.
Speaker 3: Correct.
Speaker 1: Yes, and so some Federal Reserve officials have said that
Speaker 1: this excess is due to tariffs. Do you agree with.
Speaker 3: That center, I don't if I can make two points,
Speaker 3: much as we discussed in your office, I think the
Speaker 3: data that's being used to judge inflation is quite imperfect data.
Speaker 5: But on the other hand, it's sort of at odds
Speaker 5: with the way the Fed's looking at it that they
Speaker 5: are an inflation danger but a one off, and so
Speaker 5: the FED can look through inflation and maybe at some
Speaker 5: point soon get back to cutting rates if they're not inflationary. Yes,
Speaker 5: Swartz says, then we've got a bigger inflation problem than
Speaker 5: the FED has been saying.
Speaker 4: So a big question at this hearing was can Kevin
Speaker 4: Warsh be fully independent from the President? And the President
Speaker 4: kicked off the day right before the hearing, he was
Speaker 4: on CNBC indicating he would like Kevin Worsh to lower
Speaker 4: rates when he gets into the job. How did the
Speaker 4: senators tackle that question? How front of mine was that
Speaker 4: for them?
Speaker 5: It was a front of mine, certainly to all the Democrats,
Speaker 5: but Senator Kennedy of Louisiana, who is a Republican sort
Speaker 5: of summed it up in what was clearly a pre
Speaker 5: planned way to try to get some headlines, asking him
Speaker 5: if he would be a sock puppet for the president,
Speaker 5: and of course Warsh said, of course, I will not
Speaker 5: be a stock puppet. And that's the line that sticks
Speaker 5: out to everybody. But I think the more important line
Speaker 5: was when Elizabeth Warren asked him who won the twenty
Speaker 5: twenty presidential election? Did Donald Trump lose that election?
Speaker 2: Mister Worsh, did Donald Trump lose the twenty twenty election?
Speaker 3: We try to keep politics. If I'm confirmed out of
Speaker 3: the federal.
Speaker 2: I'm just asking you a factual question. I need to know.
Speaker 2: I need to measure your independence and your courage.
Speaker 3: Senator, I believe that this body certified that election many
Speaker 3: years ago.
Speaker 2: That's not the question I'm asking. I'm asking did Donald
Speaker 2: Trump lose in twenty twenty?
Speaker 3: Man, I'm suggesting you.
Speaker 5: And Worsh refused to say. And it does show that
Speaker 5: there is still a weight, a Trump weight on what
Speaker 5: Worsh can say or is willing to say. But the
Speaker 5: takeaway is that and the idea that there was anything
Speaker 5: corrupt or anything that was wrong with Orsh other than
Speaker 5: bending to the political wins was about what you got
Speaker 5: out of that.
Speaker 4: Kevin Walsh has been a proponent of fundamentally changing the
Speaker 4: way the federal serve is structured what it does, but
Speaker 4: the FED cheer does.
Speaker 3: Status quo practices and policies are especially harmful when the
Speaker 3: world is changing this fast.
Speaker 4: What was your sense of how receptive members of the
Speaker 4: committee are to that reform agenda that Kevin Walsh, yes,
Speaker 4: talked about during the hearing, but it's talked about over
Speaker 4: the course of his long career.
Speaker 5: Well, I think that it depends on the political party,
Speaker 5: and there isn't a lot of depth on either side.
Speaker 5: Walsh has made it clear that over the years that
Speaker 5: he thinks the FED has straight out of its lane,
Speaker 5: as he put it, and gotten into fiscal or social
Speaker 5: areas that don't fall under the Fed's remit, like climate change.
Speaker 5: What may be more interesting to the people in the markets.
Speaker 5: And I don't know how much depth. You never know
Speaker 5: quite what the senators understand about monetary policy. But the
Speaker 5: idea that he would maybe want to change the communications
Speaker 5: strategy and get rid of the dot plot, which he
Speaker 5: suggested is misleading, and maybe change the Fed's inflation index.
Speaker 5: Those things could turn out to be the most important
Speaker 5: things he wants to do, along with shrinking the balance sheet,
Speaker 5: and those didn't get as much questioning. The balance sheet
Speaker 5: didn't get much at all, because perhaps the senators aren't
Speaker 5: up on that or as interested in the technical details
Speaker 5: of being on the FED.
Speaker 4: If Kevin Warrish were to be confirmed, he would be
Speaker 4: one of the wealthiest FED chairs in history. He's married
Speaker 4: to the granddaughter of Esta Lauder. She's a billionaire. He
Speaker 4: disclosed assets worth more than one hundred million dollars, and
Speaker 4: this is something that came out the course of the
Speaker 4: hearing as well. Mike, help me understand what more senators
Speaker 4: want to know about Warsh's financial size.
Speaker 5: This is another line of questioning that Elizabeth Warren really
Speaker 5: pushed was what have you invested in? His financial disclosure
Speaker 5: forms probably understate much of his holdings, and they basically
Speaker 5: just tell you in broad strokes what they've invested in.
Speaker 5: He said he had an agreement with the Office of
Speaker 5: Government Ethics to sell off his assets to the extent
Speaker 5: that he can before he takes office, which would be
Speaker 5: a herculean task perhaps, but he said he's going to
Speaker 5: do that. But he would not disclose what those investments
Speaker 5: necessarily were, and he said the OGE said, that's fine,
Speaker 5: you don't have to, and so he's stonewelled on that question.
Speaker 5: But obviously the undertone of the question is who else
Speaker 5: might you beholden to or who else might you be
Speaker 5: trying to help through monetary policy? We should mention as
Speaker 5: you did. His wife is an heir to the Stay
Speaker 5: Latter fortune, and he has promised to recuse himself from
Speaker 5: anything that would, in theory have an impact on Stay Latter,
Speaker 5: although it's kind of hard to know how that works,
Speaker 5: given that even lower interest rates would help any company,
Speaker 5: including Stay Lauder.
Speaker 4: Senator Tom Tillis, a Republican member of the Banking Committee,
Speaker 4: has threatened not to vote for Kevin Warsh if the
Speaker 4: Trump administration doesn't drop its investigation into current church Jerome
Speaker 4: Powell over renovations to the Federal Reserves headquarters in Washington.
Speaker 4: Tilli said he had just one actual objection to Warsh himself.
Speaker 3: Let's get rid of this investigation so I can support
Speaker 3: your confirmation. Mister Walsh. The only thing I've found the
Speaker 3: least bit odd about you is you've never watched an
Speaker 3: episode of.
Speaker 4: Seinfeld Seinfeld acide. Is Tillis's stance here a threat to
Speaker 4: Warsh his confirmation.
Speaker 5: It's a continued threat to the when part of his confirmation.
Speaker 5: It's not a threat to the will he be confirmed.
Speaker 5: He has the votes. Republicans are solidly on his side.
Speaker 5: But he used his entire time to rail against the
Speaker 5: investigation that the administration is conducting into J. Powell and
Speaker 5: the FED over the building renovations. And he's very dug
Speaker 5: in on the idea that unless that is dropped, he's
Speaker 5: not going to vote for Kevin Walsh. They're about nine
Speaker 5: days left, nine legislative days left to vote him out
Speaker 5: of committee and then on the floor confirm him. So
Speaker 5: there's a growing chance that he won't be confirmed because
Speaker 5: of Senator Tillis's opposition in time to take over right
Speaker 5: when J. Powell's term is up, which is on May fifteenth.
Speaker 4: So what would happen if Warsh is not confirmed in time?
Speaker 4: And what signals his President Trump send about what he
Speaker 4: wants his FED cheer nominee to do. That's next. Kevin
Speaker 4: Walsh would face a Republican controlled Senate if his nomination
Speaker 4: moves from committee to a floor vote. But there's an
Speaker 4: ongoing stalemate. GOP Senator Tom Tillis of North Carolina says
Speaker 4: he'd refuse to vote for Walsh or any FED nominee
Speaker 4: until the Trump administration drops a Justice Department investigation into
Speaker 4: renovations of the Fed's headquarters in Washington. Tillis holds a
Speaker 4: designing vote on the Senate Banking Committee and said he
Speaker 4: would be prepared to support Warsh if the probe is dropped.
Speaker 4: I asked Bloomberg's Mike McKee about how that could play out.
Speaker 5: Well, it's not clear that it would go forward once
Speaker 5: Worsh is confirmed, because that assumes that Senator Tillis is
Speaker 5: happy with the idea of the investigation being dropped. And
Speaker 5: Jay Powell says he's not going to leave the FED
Speaker 5: unless the investigation is dropped with prejudice, which is the
Speaker 5: legal term for you can't file it again. And so
Speaker 5: I'm not sure that Worsh will really inherit this issue.
Speaker 5: He'll inherit the buildings. But you have to realize the
Speaker 5: President is vastly exaggerating the over cost overruns of this,
Speaker 5: saying four billion dollars are over The cost overrun is
Speaker 5: about six hundred million at this point, which for Washington,
Speaker 5: for buildings these days and given the age of those buildings,
Speaker 5: is not completely out of line. But there isn't a
Speaker 5: whole lot of evidence that there is anything there. So
Speaker 5: the first question is why doesn't the President just called
Speaker 5: Janine Piro, the district attorney, the US attorney in Washington,
Speaker 5: and say drop the case. I want Kevin Warsh in there.
Speaker 5: And the other is a possible compromise where maybe the
Speaker 5: Senate Banking Committee conducts its own investigation that's been floated
Speaker 5: by some Senator Tillis said yesterday, maybe that's an idea.
Speaker 5: But the President seems dug in on this, which is
Speaker 5: confuses everybody because it doesn't get him what he wants,
Speaker 5: which is j. Powell out of the chairs job.
Speaker 4: Mike, You've been following over the last few years, the
Speaker 4: President's antipathy toward the current chair of the Federal Reserve
Speaker 4: and the attacks that he's made on the Fed's independence,
Speaker 4: and I'm curious if I could ask you maybe to
Speaker 4: step back and explain to what the actual effect of
Speaker 4: that has been on the institution. How is the President
Speaker 4: openly seeking to oust the head of the Federal Reserve
Speaker 4: affected the willingness of say, other governors other policymakers to
Speaker 4: break with the president.
Speaker 5: Well, you have to take Governor Stephen Myron out of him,
Speaker 5: because he was appointed by the president basically to uphold
Speaker 5: the president's views. I've talked to Steven Myron a lot,
Speaker 5: and I think he really believes those views, So it's
Speaker 5: not that he's going against his own beliefs. I think
Speaker 5: the rest of the FED has not been affected at
Speaker 5: all in terms of doing their job. But when you
Speaker 5: talk to people of the FED, they're certainly weary of it.
Speaker 5: They're tired of being the punching bag. Kevin Warsh was
Speaker 5: talking about how the FED talks too much and is
Speaker 5: out there too much, and too many people rely on
Speaker 5: it and it's become this all purpose safety valve for
Speaker 5: the economy. Well, they can't get away from that because
Speaker 5: they keep getting pushed into the spotlight by things the
Speaker 5: President says. It certainly hasn't affected Jay Powell other than
Speaker 5: the weight of being a punching bag all the time. Now,
Speaker 5: the question is Kevin worsh is going to get that
Speaker 5: if he doesn't do what the President wants, And how
Speaker 5: would that affect Walsh. I suspect he'll get a little
Speaker 5: bit of a pass from the President, but he's not
Speaker 5: gonna be happy if he doesn't get lower interest rates
Speaker 5: no matter who the chair is.
Speaker 4: Mike, I want to turn nowt to what's next for
Speaker 4: the outgoing FED chair For Jerome Powell, his term is
Speaker 4: chair scheduled to end on May the fifteenth. He said
Speaker 4: he'll stay in the job if Kevin Walsh isn't confirmed
Speaker 4: by then. He could stay on the board as a
Speaker 4: FED governor till January of twenty twenty eight. Were he
Speaker 4: to do that, what kind of influence would he have
Speaker 4: at the FED as a governor. Has he given any
Speaker 4: indications how he would operate from that position.
Speaker 5: He hasn't. It's only been recently that he's talked about
Speaker 5: staying on. It was at the last press conference when
Speaker 5: he said he would remain as the chair pro tem
Speaker 5: until Warsh were confirmed and that he would not even
Speaker 5: consider leaving the board until the investigation is dropped. It's
Speaker 5: been traditioned that FED chairs, even if their term as
Speaker 5: governors up, resign when a new chairman comes in. But
Speaker 5: if he wants to stay on, it would be an
Speaker 5: interesting situation because the FED as it's now constituted is
Speaker 5: basically a Powell Fed. People who've been working with him
Speaker 5: for a very long time and they all respect him,
Speaker 5: and they all think that what he says and his
Speaker 5: ability to get consensus is very strong. So Wall Street
Speaker 5: will be saying, well, who's really running the FED? If
Speaker 5: that's the case. Powell says he will make his decision
Speaker 5: based on what's best for the Institution and the United
Speaker 5: States rather than for himself. So if he thinks that
Speaker 5: Kevin worsh or the President was trying to assert undo
Speaker 5: pressure on the FED, maybe he might stay even if
Speaker 5: the investigation is dropped. So we're not really clear on
Speaker 5: what's going to happen with Powell.
Speaker 4: The President has once again raised the specter of trying
Speaker 4: to fire J. Powell. IFEE were to stick around past
Speaker 4: that May fifteenth deadline, You're not a lawyer. I'm not
Speaker 4: a lawyer. But what legal grounds does he have to
Speaker 4: do that? How hard fought would that be?
Speaker 5: I didn't even stay at a holiday and express last night,
Speaker 5: so I have no legal qualifications. It would be very
Speaker 5: hard though, because the Federal Reserve Act says you could
Speaker 5: only fire our governor for cause. Now the possible cause
Speaker 5: is this investigation. But remember there's no charges here. There's
Speaker 5: only a cost overrun and some thoughts by the president,
Speaker 5: some innuendo that maybe Powell profited by this. So unless
Speaker 5: there's something like that, it's going to be harder to do.
Speaker 5: Now we're all waiting on the Lisa Cook case, and
Speaker 5: we're all waiting to see if she is indeed allowed
Speaker 5: to stay on the FED. If the Supreme Court says
Speaker 5: that she can, that undercuts the president's ability to fire
Speaker 5: somebody based on innu window because there's no charge against
Speaker 5: her either. So it's going to be very hard for
Speaker 5: the president to do that. He's got a better chance
Speaker 5: of maybe making nice to j. Powell and getting him
Speaker 5: to resign than he would with firing him or attempting
Speaker 5: to do so.
Speaker 4: This is the Big Take from Bloomberg News. I'm David Gerra.
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