Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe wysn't Thal.
Speaker 2: Joe, you wrote a good newsletter this week.
Speaker 4: Thank you.
Speaker 3: Thank you for saying that just that one. I wrote
Speaker 3: a good newsletter this week. No but interesting week because
Speaker 3: obviously there's for months, you know, talk about FED independence,
Speaker 3: Would President Trump try to fire Jerome Powell? All of
Speaker 3: these different questions, It's heating up. This is a very
Speaker 3: difficult topic to talk about podcast wise, because there's always
Speaker 3: that chance that, you know, we record something on FED
Speaker 3: independence and by the time the episode is produced and edited,
Speaker 3: something new has happened. So very dicey, but you know,
Speaker 3: we're hoping that in the next short period of time
Speaker 3: this holds, because well, this is a really important story.
Speaker 2: We're recording this on July eighteenth, and I think the
Speaker 2: ambition is to get it out on July nineteenth, so
Speaker 2: hopefully nothing changes that quickly, but of course you never know.
Speaker 2: And just this week we have had these back and
Speaker 2: forth headlines. We had a report that Trump was considering
Speaker 2: firing Pal sort of imminently, and then he came out
Speaker 2: at a press conference and said no, he wasn't.
Speaker 3: Yeah, and he said there was a report that there
Speaker 3: was a literal letter that was saying other people affiliated
Speaker 3: Indian administration and hammering Powell. Some unrelated to monetary policies,
Speaker 3: some relating to the cost of renovations of the Federal
Speaker 3: Reserve offices. The criticism is of course getting intense. Anyway,
Speaker 3: I've been trying to learn more about this question of
Speaker 3: FED independence. I came across a lot of the research
Speaker 3: that was done by economist Carola Binder which had that
Speaker 3: was interesting, which talks about how FED independence is this
Speaker 3: cherished idea in economics. But it's not just about the
Speaker 3: idea of whether the FED is legally independent. Sure on
Speaker 3: the FED itself, even if the FED doesn't necessarily react,
Speaker 3: just the rhetoric against the FED and central banks around
Speaker 3: the world, not the FED specifically, but central banks around
Speaker 3: the world. Just the rhetoric and the pressure of the
Speaker 3: perception that the central bank is losing independence can have
Speaker 3: macroeconomic effects.
Speaker 2: Yeah, and despite some people cherishing that independence, we know
Speaker 2: from a lot of recent events, the rise of populism
Speaker 2: around the world, that it seems a lot of people
Speaker 2: don't like unelected bureaucrats.
Speaker 3: Yeah, let's just.
Speaker 4: Put it that way.
Speaker 2: Okay, So we actually have Kerala here. She is, of course,
Speaker 2: the Associate professor of economics in the School of Civil
Speaker 2: Leadership at UT Austin, Caroala, thank you so much for
Speaker 2: coming on odd lots.
Speaker 4: Yeah, thanks so much for having me fitty to be here.
Speaker 2: Do you just want to give us maybe a summary
Speaker 2: of your previous work and why you got interested in
Speaker 2: the subject of central bank independence in the first place.
Speaker 4: Sure, yeah, I mean the taper that was mentioned in
Speaker 4: the New Letters one called political pressure on central banks,
Speaker 4: and in that work, I really wanted to understand this
Speaker 4: distinction between legal central bank independence, which we know has
Speaker 4: been rising around the world for the past couple of decades,
Speaker 4: versus actual or de facto central bank independence, because it
Speaker 4: seems like even when the central bank does have legal
Speaker 4: protections that kind of insulate the bank from politics, there's
Speaker 4: still always going to be reason for politicians to try
Speaker 4: to convince the central bank to do what they want.
Speaker 4: I mean, that's the whole reason why we have legal
Speaker 4: protections on central bank independence. So it's kind of hard
Speaker 4: to measure that. What I ended up doing, with the
Speaker 4: help of a couple of research assistants, was reading through
Speaker 4: these reports by Economist Intelligence Unit that come out every
Speaker 4: quarter for basically every country and just seeing whenever there
Speaker 4: was a mention of some kind of political pressure on
Speaker 4: the central bank, and we tried to record whether it
Speaker 4: was pressure for easier or looser monetary policy, and also
Speaker 4: whether the central bank resisted the pressure or succumbed to it.
Speaker 4: And then once we had this new data set about
Speaker 4: all of these instances, at least all the known instances
Speaker 4: of pressure on central banks, then I was able to
Speaker 4: use that to say, well, what happens afterwards, especially to inflation.
Speaker 4: And as Joe said, if the central bank succumbs to
Speaker 4: the pressure, it's almost always pressure for looser monetary policy,
Speaker 4: So that's certainly followed by higher inflation. But even if
Speaker 4: they try to resist, inflation still rises, just not as much,
Speaker 4: but it still rises. So my interpretation there is that
Speaker 4: it probably has something to do with expectations. So people
Speaker 4: start at least worrying that there's a chance that the
Speaker 4: central bank is going to give in to those pressures.
Speaker 4: They know that if they do, that'll be inflationary, So
Speaker 4: inflation expectations rise right now, and that makes inflation itself
Speaker 4: start to rise.
Speaker 3: All to back up for a second, I described in
Speaker 3: the intro central bank independence one of these sort of
Speaker 3: very cherished ideas and perceived is extremely important. What are
Speaker 3: you describing? Why is this actually because as Tracy mentioned,
Speaker 3: there's a lot of people who find it distasteful that
Speaker 3: there are entities within any government that aren't directly democratically accountable.
Speaker 3: What is it about central bank independence that is perceived
Speaker 3: by economists to be such a goal, so to speak.
Speaker 4: So the way I see it as two main parts.
Speaker 4: One is that there is a natural inflationary bias in
Speaker 4: monetary policy, So meaning if you had monetary policy controlled
Speaker 4: by elected politicians, they would always have this concern about
Speaker 4: the next election. They always went to make the public
Speaker 4: happy in the short term, so they're going to tend
Speaker 4: towards re juicing the economy, even if in the longer
Speaker 4: run that's going to cause inflation. So in equilibrium, you're
Speaker 4: always running monetary policy to loose and getting too much inflation.
Speaker 4: That happens if you don't have an independent central bank.
Speaker 4: So if elected officials are controlling monetary policy. The other
Speaker 4: side of it is. Think about the distinction between fiscal
Speaker 4: policy and monetary policy. So having independent central banks is
Speaker 4: very common, having independent fiscal authorities is not. And the
Speaker 4: usual justification there is that fiscal policy has very obvious
Speaker 4: distributional consequences. I mean, that's basically the point of fiscal
Speaker 4: policy in some sense, like you want maybe you want
Speaker 4: progressive taxes, you want to spend on certain groups of people,
Speaker 4: you want to tax certain activities, and so that's inherently
Speaker 4: about distribution, which is something that you really want to
Speaker 4: be a political decision. You want, like the voters to
Speaker 4: decide about what kind of distribution they want. Monetary policy,
Speaker 4: on the other hand, is thought of as being a
Speaker 4: lot more even, right, it affects the macroeconomy more than
Speaker 4: it affects distribution. So in that way, it's like kind
Speaker 4: of more acceptable in a democracy to delegate it to
Speaker 4: some technocrats. That's kind of the traditional case, But of
Speaker 4: course that's been very much challenged, especially when the FED
Speaker 4: during the financial crisis started doing more unconventional monetary policies.
Speaker 4: Those did have distributional consequences. They're kind of hard to measure,
Speaker 4: but they're there, And even conventional monetary policy, like inflation
Speaker 4: is going to hurt some people more than others, having
Speaker 4: a weak labor market is going to hurt some people
Speaker 4: more than others. So I think people do partly get
Speaker 4: dissatisfied with central bank independence when they realize that whatever
Speaker 4: the FED is doing, I think maybe hurts them more
Speaker 4: than it hurts others, or that they didn't have any
Speaker 4: say and in that kind of decision, which it is
Speaker 4: political and inflation is political and monetary policy is too.
Speaker 2: You just reminded me on the topic of a natural
Speaker 2: bias towards loosening of monetary policy and therefore inflation. Do
Speaker 2: you ever get governments trying to pressure for higher interest rates?
Speaker 2: I feel like I can't come up with a single examples.
Speaker 4: Well, it might not be obviously for higher interest rates,
Speaker 4: but one of the few examples in that paper that
Speaker 4: I found of pressure for tighter monetary policy was in
Speaker 4: the US after the financial crisis, when the FED was
Speaker 4: doing so much QE and a lot of Republicans in
Speaker 4: Congress especially, we're worried that that was going to be
Speaker 4: very inflationary, so they were pressuring the FED to cut
Speaker 4: back on the QE or not do so much monetary easing.
Speaker 2: Those were wild times when we when a lot of people,
Speaker 2: myself included, probably thought q was going to be inflationary.
Speaker 3: Yeah, or people thought it was gonna be hyper inflationary.
Speaker 3: The more cynical interpretation, by the way, is not that
Speaker 3: Republicans thought that, And this is just the cynical interpretation.
Speaker 3: I'm not even saying, I'm going to say this, but
Speaker 3: not that they were worried about inflation, but that they
Speaker 3: didn't want the economy to recover particularly rapidly under a
Speaker 3: democratic president. Again, different perceptions of what their motivations are.
Speaker 2: Okay.
Speaker 3: One of the things people say, and you talk to
Speaker 3: like veteran people on Wall Street, and like they've always
Speaker 3: done this. This is nothing new in this country. Every
Speaker 3: president has in some way tried to pressure their central banker,
Speaker 3: typically for easing in some way. And I think there's
Speaker 3: all there's certainly examples of that, without question, how novel
Speaker 3: and different. When we talk about their attacking him over
Speaker 3: the cost of renovations, they're directly saying cut three hundred
Speaker 3: basis points in a tweet, et cetera. Does this feel
Speaker 3: like a meaningful step up in the level of pressure
Speaker 3: that we've historically seen in the US.
Speaker 4: Yeah, I think the meaningful difference is that it's so
Speaker 4: public now and so obvious, where it used to be
Speaker 4: like there was this protocol right that the president might
Speaker 4: want lower interest rates, they might want easier monetary policy,
Speaker 4: but they're not going to say so out loud. There
Speaker 4: was a lot of just careful procedure around it. So
Speaker 4: the fact that it's really really like a public spectacle
Speaker 4: now is a difference. It does, i think, further politicize
Speaker 4: the FED because now the general public sees the President
Speaker 4: tweeting about the FED, and depending on whether they support
Speaker 4: the President or not, they might be more angry at
Speaker 4: the FED or more defensive of the FED. So it
Speaker 4: really makes it public in a way that is pretty new.
Speaker 4: But I mean, I do get the point that there
Speaker 4: is always this pressure on the FED, always from within
Speaker 4: Congress too. You've had criticism of the FED, which coming
Speaker 4: from Congress. It's a bit more appropriate than from the
Speaker 4: President because the FED is accountable to Congress, So it
Speaker 4: kind of makes more sense that you would see a
Speaker 4: lot of criticism of the FED coming from Congress because
Speaker 4: that's more their role. They have the monetary that they've
Speaker 4: delegated to the fed.
Speaker 2: I know you're not in the sort of market coal
Speaker 2: mines on a daily basis, but I'm hoping, I'm hoping
Speaker 2: you may nevertheless have an opinion on this because one
Speaker 2: of the weird things that happened this week when all
Speaker 2: the headlines about Trump possibly firing Pal started to fly around,
Speaker 2: was the biggest reaction in the market seemed to be
Speaker 2: in the dollar, in the US currency, and we actually
Speaker 2: didn't see that much movement in yields, at least going up,
Speaker 2: like they didn't start surging. So I guess I'm curious.
Speaker 2: If your thesis holds that any type of pressure tends
Speaker 2: to be inflationary because it boosts perceptions of inflation, why
Speaker 2: wouldn't we have seen an upward rise in yields that
Speaker 2: reaction this week.
Speaker 4: Well, it's it's not that any type of pressure is inflationary.
Speaker 4: It is that, on average, across all of these hundreds
Speaker 4: of data points I was looking at, on average, pressure
Speaker 4: was inflationary. This particular could be very different, I think
Speaker 4: partly because there's so much, so much uncertainty about what
Speaker 4: is Trump actually going to do. It's hard to even
Speaker 4: follow the news here where he says he's going to
Speaker 4: fire Powell or no he didn't, you know, So any
Speaker 4: kind of announcement you get, I think the markets don't
Speaker 4: know exactly how to take it right away. And some
Speaker 4: of the news right like was already kind of baked in,
Speaker 4: Like we've known for a couple of months that President
Speaker 4: Trump was having this conflict with Chairman Powell. So maybe
Speaker 4: these most recent announcements are not really that much new news.
Speaker 3: Has the damage already been done? This is the sort
Speaker 3: of question that I'm wondering about, which is that, Okay,
Speaker 3: usure has existed to some extent forever, it's become much
Speaker 3: more of a public spectacle, it's become much more aggressive,
Speaker 3: et cetera. There is this, I would say safe assumption
Speaker 3: that Paula doesn't have that much longer in his term,
Speaker 3: but that the assumption is that the next FED chair
Speaker 3: will be some sort of capital l loyalist, too sure
Speaker 3: that there will be alignment. I forget who it was
Speaker 3: on TV talking about we need a new FED Treasury accord.
Speaker 3: So would you say, like to some extent, that the
Speaker 3: glass has been broken here or the glass has been cracked,
Speaker 3: and that the damage has been done, even if the
Speaker 3: FED legally retained its existing structure, that the FED going
Speaker 3: forward will not be the same independent FED. It will
Speaker 3: not be as independent as we've had for the last
Speaker 3: several decades.
Speaker 4: Yes, I think that the damage to the perception of
Speaker 4: the Fed's independence has already been done. There are really
Speaker 4: big political divides how people perceive the FED. The kind
Speaker 4: of tradition that one president would reappoint the previous president's
Speaker 4: FED share, even if they were from a different political party.
Speaker 4: I think that that tradition probably is over.
Speaker 3: Kind of like Supreme Court nominations which used to fly
Speaker 3: through now are entirely done on political like the votes
Speaker 3: on this confirmation votes are completely political now.
Speaker 4: Yeah, but I would say it's not just the fault
Speaker 4: of Trump since his election, since his most recent election.
Speaker 4: It's not just that. It's also what was happening during
Speaker 4: the pandemic and during the high inflation episode and twenty
Speaker 4: twenty one and twenty twenty two that did a lot
Speaker 4: of damage as well, because there was so much on
Speaker 4: both sides of trying to like place the blame and
Speaker 4: saying was everything, The Fed's fault was everything. The fault
Speaker 4: of the fiscal stimulus was it transitor, was inflation and
Speaker 4: transitory or permanent. That really got things more politicized then,
Speaker 4: and that's only been exacerbated by the past couple months.
Speaker 2: So one of the other narratives that I've seen this
Speaker 2: week is this idea that, Okay, even if Trump fired
Speaker 2: pal and put in place someone who would immediately push
Speaker 2: for lower interest rates, you wouldn't necessarily get them a
Speaker 2: because of the market expectations which you just describe, So
Speaker 2: people might start pricing in higher inflation expectations, which would
Speaker 2: move the curve up or steep in the curve. But
Speaker 2: also because it's not just the FED chair making decisions,
Speaker 2: it's a committee, and Trump might not be able to
Speaker 2: influence the entire committee. How do you take into account,
Speaker 2: I guess the rest of the FMC members. How do
Speaker 2: they play into this type of political pressure.
Speaker 4: Yeah, so it is monetary policy by committee and different
Speaker 4: under different FED chairs. The kind of committee decision making
Speaker 4: has differed a little, just the norms around it. So
Speaker 4: whether they like kind of how strong the FED chair
Speaker 4: was and making sure that everyone would come to a
Speaker 4: consensus versus allowing some more disagreement to be public. But yeah,
Speaker 4: I think the fact that I mean the fact that
Speaker 4: the members of the Committee have these overlapping terms and
Speaker 4: pretty long term lengths. Is part of what gives it
Speaker 4: independence because it means we don't have a complete turnover
Speaker 4: of the Committee at any given point in time, and
Speaker 4: there's going to be a lot of continuity there because
Speaker 4: of that institutional structure. Especially if you get a FED
Speaker 4: chair that's kind of external, that's viewed as a loyalist,
Speaker 4: the rest of the Committee may be quite reluctant to
Speaker 4: just go along with whatever the new FED chair says
Speaker 4: if they don't feel like it's the right decision. The
Speaker 4: FED to emphasize all the time that they're data dependent,
Speaker 4: and I think that's the line that a lot of
Speaker 4: Committee members would keep using. The unfortunate things we don't
Speaker 4: know exactly in what sense they are data dependent, Like
Speaker 4: they don't publish a monetary policy rule that they follow,
Speaker 4: but they say that they take into account not just
Speaker 4: the PCEE inflation rate and the unemployment rate, but all
Speaker 4: sorts of other indicators about where the economy is headed,
Speaker 4: and they react to all of those. So they would
Speaker 4: I'm pretty sure most of the Committee would try to
Speaker 4: just stick to the course that they're on, even if
Speaker 4: there were a new chair in place.
Speaker 3: It would be really interesting because dissents are very rare,
Speaker 3: and sometimes you get a lot of times you get
Speaker 3: no descent, sometimes you get one. Very rarely you get two.
Speaker 3: In the last in my career, I can't remember any
Speaker 3: decision in the US that I think ever got more
Speaker 3: than two descents. It would be interesting if that norm
Speaker 3: or broken, where the Fed really does not control or
Speaker 3: have basically get to guide the committee on their preferred path.
Speaker 3: I want to talk about in the broad research. Globally,
Speaker 3: establishing the independent central bank is politically difficult, and some
Speaker 3: countries attempt to do it by simply outsourcing their monetary
Speaker 3: policy to the Federal Reserve itself, by setting up a
Speaker 3: dollar peg or currency board or something like that, because
Speaker 3: they don't even have the sort of political capacity to
Speaker 3: establish a truly independent central bank. What are the patterns
Speaker 3: you see around the world. I'm curious in your research
Speaker 3: when pressure builds on a central bank, is it usually
Speaker 3: sort of a symptom of a broader domestic political disintegration
Speaker 3: that's happening where just all kinds of norms are being violated,
Speaker 3: or all kinds of structures are sort of collapsing or
Speaker 3: deteriorating in some way.
Speaker 4: Yeah, Well, to the part about how the central bank
Speaker 4: independence is set up, Sometimes it's because there's already a
Speaker 4: very strong preference in that country for lower inflation, So
Speaker 4: then it's kind of easier to set up an independent
Speaker 4: central bank because they really want low inflation and they're
Speaker 4: committed to it, which is why it's so hard and
Speaker 4: the research to say the central bank independence actually lower
Speaker 4: inflation because you have like a reverse causality. So sometimes
Speaker 4: that's how it gets set up. Sometimes it's imposed by
Speaker 4: like the IMF saying, you know, if you want to
Speaker 4: keep having our support, there's some things you need to do,
Speaker 4: and one of them is set up as independent central bank.
Speaker 4: But then the part about like when do politicians start
Speaker 4: pressuring the central bank? When does that really build up? Yeah,
Speaker 4: I mean there was a lot more of the pressure
Speaker 4: on the central banks around around crisis times. So I
Speaker 4: think the financial crisis did erode a lot of trust
Speaker 4: and institutions and made it more acceptable to pressure central banks. Also,
Speaker 4: during the twenty tens, when inflation was really low, that
Speaker 4: made it seem more like, Okay, having higher inflation doesn't
Speaker 4: necessarily seem like so much of a threat. What we
Speaker 4: really want is to boost the labor markets, at least
Speaker 4: in certain countries, so then there was more pressure on
Speaker 4: the central banks that way. The other thing is also
Speaker 4: like the fiscal situation. So if there's big, big debts
Speaker 4: to finance, right, and then there's going to be often
Speaker 4: pressure for the lower interest rates or to monetize the
Speaker 4: debt tracy.
Speaker 3: By the way, just as we're recording this headline from
Speaker 3: the AP, all this stuff about criticism of the FED,
Speaker 3: it turns out Chris Rugerberg Josh Bolke of the AP
Speaker 3: reporting much of these costs were associated in twenty twenty
Speaker 3: with Trump officials demanding that there'll be more marble at
Speaker 3: the FED instead of glass. So a new wrinkle to
Speaker 3: the cost of these office constructions.
Speaker 2: Anyway, you gotta have that marble. Trump loves marble, marble
Speaker 2: and gold. He does have a very Louis the fifteenth style,
Speaker 2: I guess tastes in interior design. Anyway, maybe we should
Speaker 2: do an interior design. Yeah, yeah, I don't like that.
Speaker 4: Okay.
Speaker 2: Anyway, On a serious note, given those concerns around trusting
Speaker 2: unelected bureaucrats and the idea that maybe you know, central
Speaker 2: banks started to overstep their traditional roles post two thousand
Speaker 2: and eight or something like that. What's the best way of,
Speaker 2: I guess, ensuring that central banks are in some way
Speaker 2: answerable to the electorate or in some way you know,
Speaker 2: there's accountability there without sacrificing that independence.
Speaker 4: Yeah. I mean, this is a really important topic to
Speaker 4: me and something I focus a lot on in my
Speaker 4: book and in some of my other research. But I
Speaker 4: think that making sure that the role of the FED
Speaker 4: or the Central Bank is limited to something like price
Speaker 4: stability and having a lot of transparency about how they're
Speaker 4: achieving that is really important. So the FED has a
Speaker 4: dual mandate. Having the price stability and the employment side
Speaker 4: of the mandate gives them a lot of discretion because
Speaker 4: sometimes those two goals can come into conflict and then
Speaker 4: they need to just decide, well, what are we going
Speaker 4: to prioritize right now. The more discretion that unelected technocrats have,
Speaker 4: the more room there is for people to try to
Speaker 4: pressure them one way or the other. In my book,
Speaker 4: I advocate for a nominal GDP or a nominal income target,
Speaker 4: which I think would help them achieve both parts of
Speaker 4: that dual mandate, but with a single target that they're
Speaker 4: going after, and then it makes it really clear at
Speaker 4: any given point of time do they need tighter or
Speaker 4: looser monetary policy, and there's not as much like wiggle room.
Speaker 4: It makes it easier for them to justify their actions
Speaker 4: and for the public to say, well, are they doing
Speaker 4: what they say they're going to do or not? Versus
Speaker 4: if you have an inflation target and kind of full
Speaker 4: employment target, then you can always argue kind of for
Speaker 4: either way. And yeah, so just keeping the role more limited.
Speaker 4: Not lately, but before COVID, there was a lot more
Speaker 4: pressure around central banks to do even more beyond those
Speaker 4: kind of two parts of the dual mandate, to take
Speaker 4: on climate change and inequality and issues like that. And
Speaker 4: I think that those are important things that somebody needs
Speaker 4: to do, but it's not really the job of the
Speaker 4: FED because they're not elected to do that, and those
Speaker 4: kinds of political topics need to be addressed by elected officials.
Speaker 3: One of the funny things I used to think of
Speaker 3: the twenty tens is that had the FED only had
Speaker 3: a single mandate, it's not it's conceivable to me that
Speaker 3: policy would have been looser if they were continuing to
Speaker 3: fail on its inflation target from the downside in those
Speaker 3: days that you know, they continued to miss that two percent.
Speaker 3: Had they had a nominal GDP target, a nominal income
Speaker 3: target solely, it's possible actually that they might have achieved
Speaker 3: the employment part of the mandate sooner because it would
Speaker 3: be so sufficient that they were failing to hit that
Speaker 3: target anyway, Caro Lebinder really appreciate you coming on. I'm
Speaker 3: finding your research to be very fascinated. I'm happy to
Speaker 3: have dived into it, so thank you so much for
Speaker 3: coming on online.
Speaker 4: Thank you.
Speaker 1: Jo.
Speaker 2: Obviously a very timely episode to get out. I do
Speaker 2: think the question you asked about whether or not attacks
Speaker 2: on central bank independence might be part of a broader
Speaker 2: deterioration norms and what's deemed acceptable by society and political society,
Speaker 2: there is an element of that, Like, it does feel
Speaker 2: like that.
Speaker 3: No, Like I think so like. I think if you
Speaker 3: were to look around the world and you were to say,
Speaker 3: find those examples where there is a lot of pressure
Speaker 3: or stress on central banks, I think almost always you
Speaker 3: would find it associated with other things happening in politics
Speaker 3: that are sort of you know, the wheels are coming
Speaker 3: off in some way. Turkey strikes me is a great
Speaker 3: example of a country where the sort of like democratic
Speaker 3: norms have eroded over time, certainly over the last twenty years,
Speaker 3: many would say, And which gets to this whole idea
Speaker 3: which Carola talked about. Causality is often hard to establish.
Speaker 3: So you can point to on the line that this
Speaker 3: pressure on a central bank, central bank independence period associated
Speaker 3: with this or that inflation. But whether that's because it
Speaker 3: was the pressure or because many bad things are going
Speaker 3: on at the time, it's hard to disentangle.
Speaker 2: Absolutely, But I guess her broad conclusion that on average
Speaker 2: this type of political pressure does lead to higher inflation expectations,
Speaker 2: like it does suggest that if your ambition is lower rates,
Speaker 2: then maybe this doesn't help.
Speaker 3: I mean, here's the thing. We are almost certainly going
Speaker 3: to get a FED chair sometime in the next year.
Speaker 3: Whether it's because Paula has been removed from his term
Speaker 3: prematurely or just because at the end the next central
Speaker 3: banker is perceived as a President Trump loyalist, there is
Speaker 3: probably going to be a meaningful difference in the reaction
Speaker 3: function of the FED toward faster impulse to cut. Very naturally,
Speaker 3: people can assume, therefore that the future would be all
Speaker 3: things equal, more inflationary.
Speaker 2: Very naturally, the natural rate will go up. Okay, shall
Speaker 2: we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Odd Loots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Chacy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our guest Carola Binder, She's at c Consis. Follow
Speaker 3: our producers Kerman Rodriguez at Kerman ermann Dash, Ob Bennett
Speaker 3: at Dashbod and Kelbrooks at Kelbrooks. For more Odd Lots content,
Speaker 3: go to Bloomberg dot com slash odd Lots with the
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