1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:09,240 --> 00:00:11,799 Speaker 2: I'm Stephen Carol and this is Here's Why, where we 3 00:00:11,840 --> 00:00:14,080 Speaker 2: take one news story and explain it in just a 4 00:00:14,080 --> 00:00:16,360 Speaker 2: few minutes with our experts here at Bloomberg. 5 00:00:19,079 --> 00:00:21,599 Speaker 3: It is my pleasure and my honor to announce my 6 00:00:21,720 --> 00:00:26,920 Speaker 3: nomination of Jerome Powell to be the next Chairman of 7 00:00:26,960 --> 00:00:31,720 Speaker 3: the Federal Reserve. Based on his record, I am confident 8 00:00:31,800 --> 00:00:35,360 Speaker 3: that Jay has the wisdom and leadership to guide our 9 00:00:35,400 --> 00:00:40,920 Speaker 3: economy through any challenges that our great economy may face. 10 00:00:41,280 --> 00:00:44,520 Speaker 2: It was a relationship that started well, but during Donald 11 00:00:44,520 --> 00:00:47,199 Speaker 2: Trump's time in the White House things changed. 12 00:00:47,720 --> 00:00:50,319 Speaker 4: I think the Fed is out of control. I think 13 00:00:50,360 --> 00:00:53,720 Speaker 4: what they're doing is wrong. He is so far made 14 00:00:53,720 --> 00:00:54,680 Speaker 4: a lot of bad decisions. 15 00:00:54,720 --> 00:00:58,040 Speaker 3: In my opinion, we have some tremendous opportunities right now, 16 00:00:58,320 --> 00:00:59,920 Speaker 3: but Jerome Powell is not making it. 17 00:01:00,520 --> 00:01:03,280 Speaker 2: Trump has repeated some of those comments in his campaign 18 00:01:03,360 --> 00:01:06,920 Speaker 2: for re election this year. Jerome Powell hasn't responded directly, 19 00:01:07,080 --> 00:01:09,440 Speaker 2: but at this speech in April, the FED chair outlined 20 00:01:09,440 --> 00:01:12,000 Speaker 2: the case for the Central Banks independence. 21 00:01:12,440 --> 00:01:16,199 Speaker 5: Such independence for a federal agency is and should be rare. 22 00:01:16,840 --> 00:01:19,200 Speaker 5: In the case of the FED, independence is essential to 23 00:01:19,240 --> 00:01:22,080 Speaker 5: our ability to serve the public. The record shows that 24 00:01:22,160 --> 00:01:26,520 Speaker 5: independent central banks deliver better economic outcomes. We recognize that 25 00:01:26,560 --> 00:01:29,480 Speaker 5: we need to continually earn this granted independence, and we 26 00:01:29,560 --> 00:01:32,319 Speaker 5: do so by carrying out our work with technical competence 27 00:01:32,360 --> 00:01:36,399 Speaker 5: and objectivity in a transparent and accountable manner, and by 28 00:01:36,400 --> 00:01:37,440 Speaker 5: sticking to our knitting. 29 00:01:37,680 --> 00:01:40,480 Speaker 2: With the possibility of another Trump presidency on the horizon, 30 00:01:40,560 --> 00:01:42,959 Speaker 2: it's an issue that's back in focus. In fact, some 31 00:01:43,000 --> 00:01:47,080 Speaker 2: of Trump's informal advisors have recently floated ideas which could 32 00:01:47,120 --> 00:01:50,480 Speaker 2: give the president more control over the Central Bank. So 33 00:01:50,960 --> 00:01:54,640 Speaker 2: here's why Trump being re elected could spell trouble for 34 00:01:54,720 --> 00:01:57,800 Speaker 2: the FED. Our Federal Reserve reporter Amera Mouquay joins me 35 00:01:57,880 --> 00:02:00,400 Speaker 2: now for more high amer great to have you with us. 36 00:02:00,840 --> 00:02:03,840 Speaker 2: First of all, what are these ideas that are being floated? 37 00:02:04,000 --> 00:02:05,040 Speaker 2: Where are they coming from? 38 00:02:05,880 --> 00:02:09,519 Speaker 1: So in recent weeks, reporting has come out both from 39 00:02:09,720 --> 00:02:11,839 Speaker 1: us here at Bloomberg and other outlets like the Wall 40 00:02:11,840 --> 00:02:16,480 Speaker 1: Street Journal that informal and outside advisors are kind of 41 00:02:16,600 --> 00:02:20,639 Speaker 1: putting forth proposals and thinking of ideas that could potentially 42 00:02:20,919 --> 00:02:24,320 Speaker 1: curb the independence of the Federal Reserve. So some of 43 00:02:24,360 --> 00:02:28,680 Speaker 1: those ideas, for instance, are allowing the president to have 44 00:02:29,080 --> 00:02:32,799 Speaker 1: more of a say in interest rate decisions, or allowing 45 00:02:32,840 --> 00:02:35,639 Speaker 1: the president to find a way to fire the FED 46 00:02:35,720 --> 00:02:38,560 Speaker 1: chair Jerome Palell before his term as chair is up 47 00:02:38,560 --> 00:02:41,040 Speaker 1: in twenty twenty six. So these are things that are 48 00:02:41,080 --> 00:02:45,440 Speaker 1: really radical ideas. Right, Presidents have generally respected the independence 49 00:02:45,440 --> 00:02:47,760 Speaker 1: of the Federal Reserve. They definitely have not had a 50 00:02:47,840 --> 00:02:51,000 Speaker 1: say in interest rate decisions at the Federal Reserve because 51 00:02:51,000 --> 00:02:53,400 Speaker 1: the idea is that you want the central bank to 52 00:02:53,520 --> 00:02:56,520 Speaker 1: be independent so that it can make decisions that are 53 00:02:56,560 --> 00:02:59,840 Speaker 1: best for the economy without consideration. 54 00:02:59,360 --> 00:03:01,600 Speaker 4: Or fear of political retribution. 55 00:03:02,120 --> 00:03:06,760 Speaker 1: And so this reporting has really raised speculation that former 56 00:03:06,800 --> 00:03:09,800 Speaker 1: President Trump, if he were to be reelected, could tamper 57 00:03:10,160 --> 00:03:12,760 Speaker 1: with the FED. And there's a good history there to 58 00:03:12,960 --> 00:03:16,359 Speaker 1: suggest that Trump could take an untraditional posture towards the 59 00:03:16,400 --> 00:03:20,880 Speaker 1: FED because during his presidential term he very publicly criticized 60 00:03:20,919 --> 00:03:23,600 Speaker 1: the FED and Jerome Powell during a time when the 61 00:03:23,600 --> 00:03:26,440 Speaker 1: central bank was raising interest rates, and that really breaks 62 00:03:26,440 --> 00:03:29,800 Speaker 1: with the president that presidents have embraced of really not 63 00:03:30,040 --> 00:03:32,320 Speaker 1: publicly criticizing the FED so that it can have that 64 00:03:32,360 --> 00:03:33,960 Speaker 1: independence to make policy. 65 00:03:34,520 --> 00:03:36,400 Speaker 2: Yeah, indeed, it was one of the things that we 66 00:03:36,480 --> 00:03:39,040 Speaker 2: followed at Bloomberg quite closely some of the commentary that 67 00:03:39,080 --> 00:03:42,440 Speaker 2: Donald Trump made while he was president about Jerome Powell. 68 00:03:42,480 --> 00:03:45,040 Speaker 2: I think it's probably fair to say that he's not 69 00:03:45,160 --> 00:03:46,880 Speaker 2: a fan of the Federal Reserve Chair. 70 00:03:47,400 --> 00:03:49,840 Speaker 1: Very fair to say that, as we were just talking about, 71 00:03:49,880 --> 00:03:54,600 Speaker 1: he very publicly criticized Jerome Powell during his presidential term, 72 00:03:54,840 --> 00:03:56,640 Speaker 1: and he's already said that if he were to be 73 00:03:56,680 --> 00:03:59,960 Speaker 1: re elected, he would not reappoint Chair Pale as chair, 74 00:04:00,320 --> 00:04:02,920 Speaker 1: And very fair to say that they had a testing relationship, 75 00:04:02,920 --> 00:04:04,160 Speaker 1: at least publicly in the past. 76 00:04:04,840 --> 00:04:09,080 Speaker 2: So concretely, what influence can a president exert over the 77 00:04:09,120 --> 00:04:09,880 Speaker 2: Federal Reserve? 78 00:04:10,240 --> 00:04:13,680 Speaker 1: So the biggest influence that a president has is appointments. Right, 79 00:04:13,800 --> 00:04:16,720 Speaker 1: So there is a board of governors at the Federal Reserve, 80 00:04:16,839 --> 00:04:20,880 Speaker 1: and when slots come open, the president nominates people to 81 00:04:20,960 --> 00:04:24,480 Speaker 1: fill those slots. And obviously the Central Bank is very 82 00:04:24,480 --> 00:04:27,919 Speaker 1: important for the trajectory of the economy. They set interest rates, 83 00:04:27,920 --> 00:04:30,440 Speaker 1: they can influence the psychology of how people think about 84 00:04:30,480 --> 00:04:33,359 Speaker 1: the economy, and so those appointments are very important. And 85 00:04:33,400 --> 00:04:36,279 Speaker 1: then beyond just the board of governors, the president also 86 00:04:36,400 --> 00:04:40,600 Speaker 1: nominates from among the governors, nominates people to very important positions, 87 00:04:40,640 --> 00:04:43,440 Speaker 1: including chair, and there are two vice chair positions on 88 00:04:43,520 --> 00:04:45,960 Speaker 1: the board as well, so the president gets to influence 89 00:04:46,000 --> 00:04:48,880 Speaker 1: the board when those slots come open. Now, those nominees 90 00:04:48,920 --> 00:04:52,000 Speaker 1: are subject to confirmation by the Senate, so there is 91 00:04:52,000 --> 00:04:54,640 Speaker 1: a little bit of a check there, But certainly the 92 00:04:54,680 --> 00:04:58,679 Speaker 1: Senate does try to respect when a president nominates people 93 00:04:58,680 --> 00:05:01,880 Speaker 1: for the board, to honor the resident's decisions, assuming that 94 00:05:01,920 --> 00:05:04,719 Speaker 1: those nominees are qualified and all of those things. 95 00:05:04,880 --> 00:05:07,599 Speaker 4: So that's the most direct and important way. 96 00:05:08,000 --> 00:05:12,960 Speaker 1: But also presidents do try to apply pressure privately. 97 00:05:12,600 --> 00:05:13,799 Speaker 4: When they meet with the Fed. 98 00:05:14,279 --> 00:05:17,720 Speaker 1: When they talk to the chair of the Fed in private, 99 00:05:18,120 --> 00:05:21,800 Speaker 1: they express their opinions on the economy and interest rates 100 00:05:21,839 --> 00:05:24,200 Speaker 1: and other matters that the Fed is dealing with. And 101 00:05:24,240 --> 00:05:27,960 Speaker 1: so historically we do know that presidents have expressed their 102 00:05:27,960 --> 00:05:31,800 Speaker 1: preferences and expressed their desires to Fed officials in private 103 00:05:31,839 --> 00:05:32,240 Speaker 1: as well. 104 00:05:32,520 --> 00:05:35,320 Speaker 2: So that's the traditional playbook for how things work between 105 00:05:35,440 --> 00:05:39,640 Speaker 2: the Federal Reserve and the White House. But is there 106 00:05:39,640 --> 00:05:42,719 Speaker 2: a potential that if Donald Trump is reelected that he 107 00:05:42,800 --> 00:05:45,800 Speaker 2: could change the rules, change the playbook. Is this a 108 00:05:45,839 --> 00:05:47,640 Speaker 2: matter that markets need to be worried about. 109 00:05:47,880 --> 00:05:52,000 Speaker 1: Well, I think markets are paying attention, right, because stability, continuity, 110 00:05:52,279 --> 00:05:54,560 Speaker 1: a belief in the independence of the Federal Reserve is 111 00:05:54,640 --> 00:05:57,240 Speaker 1: kind of one of the bedrocks of our economy, and 112 00:05:57,320 --> 00:06:00,640 Speaker 1: so the idea that a president could put me come 113 00:06:00,640 --> 00:06:03,360 Speaker 1: in and try to undermine some of that, I think 114 00:06:03,400 --> 00:06:06,479 Speaker 1: would certainly be concerning for markets, particularly the bond market. 115 00:06:06,960 --> 00:06:10,320 Speaker 1: But when I talk to constitutional scholars and FED historians 116 00:06:10,400 --> 00:06:14,240 Speaker 1: about this, there are a lot of guardrails around the 117 00:06:14,279 --> 00:06:18,720 Speaker 1: FED that does somewhat insulate them from interference. For instance, 118 00:06:18,760 --> 00:06:21,760 Speaker 1: it is legal scholars tell me very difficult to remove 119 00:06:21,800 --> 00:06:26,200 Speaker 1: members of the board because of for cause, a clause 120 00:06:26,240 --> 00:06:28,039 Speaker 1: that is in the Federal Reserve Act, which is the 121 00:06:28,120 --> 00:06:31,000 Speaker 1: law that created the Federal Reserve and really governs it. Right, 122 00:06:31,120 --> 00:06:33,840 Speaker 1: in order to remove a FED governor, they have to 123 00:06:34,000 --> 00:06:37,159 Speaker 1: do something that is for cause, which is generally thought 124 00:06:37,160 --> 00:06:40,280 Speaker 1: to mean something that is serious misconduct or malfeasan something 125 00:06:40,360 --> 00:06:43,080 Speaker 1: like that, And so a lot of legal scholars say, look, 126 00:06:43,680 --> 00:06:46,719 Speaker 1: it would be very difficult to do that. But again, 127 00:06:46,960 --> 00:06:49,599 Speaker 1: Donald Trump is not a traditional person. He was not 128 00:06:49,640 --> 00:06:52,360 Speaker 1: a traditional president, and so I think that's why some 129 00:06:52,400 --> 00:06:54,800 Speaker 1: of the speculation comes around whether he might try to 130 00:06:54,839 --> 00:06:58,240 Speaker 1: do things that haven't been tried in the past. 131 00:06:57,720 --> 00:07:00,520 Speaker 2: So that's kind of the concern for markets. Does this 132 00:07:00,600 --> 00:07:03,200 Speaker 2: issue matter to voters? What has Joe Biden been saying 133 00:07:03,200 --> 00:07:03,760 Speaker 2: about the Fed? 134 00:07:04,240 --> 00:07:06,800 Speaker 1: One thing we do know is that the economy matters 135 00:07:06,839 --> 00:07:10,559 Speaker 1: a lot to voters this coming presidential election. A lot 136 00:07:10,600 --> 00:07:14,600 Speaker 1: of Americans are focused on inflation. They're focused on what 137 00:07:14,640 --> 00:07:17,120 Speaker 1: the FED is doing to bring down inflation. They're focused 138 00:07:17,120 --> 00:07:20,400 Speaker 1: on this idea that the FED might hold interest rates 139 00:07:20,400 --> 00:07:22,800 Speaker 1: at this high level where they are now in order 140 00:07:22,840 --> 00:07:25,960 Speaker 1: to continue to bring inflation down to the Fed's two 141 00:07:26,000 --> 00:07:29,120 Speaker 1: percent goal. And so, to the extent that voters care 142 00:07:29,200 --> 00:07:33,280 Speaker 1: about the FED lowering inflation, bringing some relief on prices 143 00:07:33,320 --> 00:07:36,680 Speaker 1: to people's budgets and wallets, they're going to care what 144 00:07:36,840 --> 00:07:38,360 Speaker 1: is happening with the Federal Reserve and. 145 00:07:38,320 --> 00:07:40,080 Speaker 4: The dialogue around the Federal Reserve. 146 00:07:40,360 --> 00:07:43,360 Speaker 1: Now, Joe Biden has been pretty traditional in his approach 147 00:07:43,400 --> 00:07:46,600 Speaker 1: to the Federal Reserve. He hasn't really commented publicly on 148 00:07:46,720 --> 00:07:50,240 Speaker 1: Fed policy or interest rate policy. He has predicted that 149 00:07:50,280 --> 00:07:53,000 Speaker 1: the FED will cut rates this year. He's predicted that twice, 150 00:07:53,040 --> 00:07:56,080 Speaker 1: doubling down recently on an earlier comment that he believed 151 00:07:56,120 --> 00:07:56,760 Speaker 1: that the FED. 152 00:07:56,520 --> 00:07:59,200 Speaker 4: Would cut rates so that was a little surprising. 153 00:07:58,720 --> 00:08:01,960 Speaker 1: But generally speaking, he hasn't really commented publicly on the FED, 154 00:08:02,000 --> 00:08:05,680 Speaker 1: and his administration actually recently released a blog post talking 155 00:08:05,720 --> 00:08:08,840 Speaker 1: about how much they value central bank independence because they 156 00:08:08,880 --> 00:08:12,840 Speaker 1: believe that ultimately allows for better monetary policy outcomes. 157 00:08:13,320 --> 00:08:16,360 Speaker 2: Okay, Amaram Okway, our Federal Reserve reporter, thank you very 158 00:08:16,480 --> 00:08:19,080 Speaker 2: much for joining us. For more explanations like this from 159 00:08:19,120 --> 00:08:21,800 Speaker 2: our team of twenty seven hundred journalists and analysts from 160 00:08:21,800 --> 00:08:24,400 Speaker 2: around the world, search for Quick Take on the Bloomberg 161 00:08:24,400 --> 00:08:29,200 Speaker 2: website or Bloomberg Business App. I'm Stephen Carol. This is 162 00:08:29,240 --> 00:08:31,920 Speaker 2: here's why. I'll be back with more next week. Thanks 163 00:08:31,920 --> 00:08:32,480 Speaker 2: for listening.