WEBVTT - Here's Why Trump Being Re-Elected Could Spell Trouble For the Fed

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>I'm Stephen Carol and this is Here's Why, where we

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<v Speaker 2>take one news story and explain it in just a

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<v Speaker 2>few minutes with our experts here at Bloomberg.

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<v Speaker 3>It is my pleasure and my honor to announce my

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<v Speaker 3>nomination of Jerome Powell to be the next Chairman of

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<v Speaker 3>the Federal Reserve. Based on his record, I am confident

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<v Speaker 3>that Jay has the wisdom and leadership to guide our

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<v Speaker 3>economy through any challenges that our great economy may face.

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<v Speaker 2>It was a relationship that started well, but during Donald

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<v Speaker 2>Trump's time in the White House things changed.

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<v Speaker 4>I think the Fed is out of control. I think

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<v Speaker 4>what they're doing is wrong. He is so far made

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<v Speaker 4>a lot of bad decisions.

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<v Speaker 3>In my opinion, we have some tremendous opportunities right now,

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<v Speaker 3>but Jerome Powell is not making it.

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<v Speaker 2>Trump has repeated some of those comments in his campaign

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<v Speaker 2>for re election this year. Jerome Powell hasn't responded directly,

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<v Speaker 2>but at this speech in April, the FED chair outlined

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<v Speaker 2>the case for the Central Banks independence.

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<v Speaker 5>Such independence for a federal agency is and should be rare.

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<v Speaker 5>In the case of the FED, independence is essential to

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<v Speaker 5>our ability to serve the public. The record shows that

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<v Speaker 5>independent central banks deliver better economic outcomes. We recognize that

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<v Speaker 5>we need to continually earn this granted independence, and we

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<v Speaker 5>do so by carrying out our work with technical competence

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<v Speaker 5>and objectivity in a transparent and accountable manner, and by

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<v Speaker 5>sticking to our knitting.

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<v Speaker 2>With the possibility of another Trump presidency on the horizon,

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<v Speaker 2>it's an issue that's back in focus. In fact, some

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<v Speaker 2>of Trump's informal advisors have recently floated ideas which could

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<v Speaker 2>give the president more control over the Central Bank. So

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<v Speaker 2>here's why Trump being re elected could spell trouble for

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<v Speaker 2>the FED. Our Federal Reserve reporter Amera Mouquay joins me

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<v Speaker 2>now for more high amer great to have you with us.

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<v Speaker 2>First of all, what are these ideas that are being floated?

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<v Speaker 2>Where are they coming from?

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<v Speaker 1>So in recent weeks, reporting has come out both from

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<v Speaker 1>us here at Bloomberg and other outlets like the Wall

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<v Speaker 1>Street Journal that informal and outside advisors are kind of

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<v Speaker 1>putting forth proposals and thinking of ideas that could potentially

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<v Speaker 1>curb the independence of the Federal Reserve. So some of

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<v Speaker 1>those ideas, for instance, are allowing the president to have

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<v Speaker 1>more of a say in interest rate decisions, or allowing

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<v Speaker 1>the president to find a way to fire the FED

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<v Speaker 1>chair Jerome Palell before his term as chair is up

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<v Speaker 1>in twenty twenty six. So these are things that are

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<v Speaker 1>really radical ideas. Right, Presidents have generally respected the independence

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<v Speaker 1>of the Federal Reserve. They definitely have not had a

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<v Speaker 1>say in interest rate decisions at the Federal Reserve because

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<v Speaker 1>the idea is that you want the central bank to

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<v Speaker 1>be independent so that it can make decisions that are

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<v Speaker 1>best for the economy without consideration.

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<v Speaker 4>Or fear of political retribution.

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<v Speaker 1>And so this reporting has really raised speculation that former

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<v Speaker 1>President Trump, if he were to be reelected, could tamper

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<v Speaker 1>with the FED. And there's a good history there to

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<v Speaker 1>suggest that Trump could take an untraditional posture towards the

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<v Speaker 1>FED because during his presidential term he very publicly criticized

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<v Speaker 1>the FED and Jerome Powell during a time when the

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<v Speaker 1>central bank was raising interest rates, and that really breaks

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<v Speaker 1>with the president that presidents have embraced of really not

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<v Speaker 1>publicly criticizing the FED so that it can have that

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<v Speaker 1>independence to make policy.

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<v Speaker 2>Yeah, indeed, it was one of the things that we

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<v Speaker 2>followed at Bloomberg quite closely some of the commentary that

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<v Speaker 2>Donald Trump made while he was president about Jerome Powell.

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<v Speaker 2>I think it's probably fair to say that he's not

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<v Speaker 2>a fan of the Federal Reserve Chair.

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<v Speaker 1>Very fair to say that, as we were just talking about,

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<v Speaker 1>he very publicly criticized Jerome Powell during his presidential term,

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<v Speaker 1>and he's already said that if he were to be

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<v Speaker 1>re elected, he would not reappoint Chair Pale as chair,

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<v Speaker 1>And very fair to say that they had a testing relationship,

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<v Speaker 1>at least publicly in the past.

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<v Speaker 2>So concretely, what influence can a president exert over the

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<v Speaker 2>Federal Reserve?

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<v Speaker 1>So the biggest influence that a president has is appointments. Right,

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<v Speaker 1>So there is a board of governors at the Federal Reserve,

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<v Speaker 1>and when slots come open, the president nominates people to

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<v Speaker 1>fill those slots. And obviously the Central Bank is very

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<v Speaker 1>important for the trajectory of the economy. They set interest rates,

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<v Speaker 1>they can influence the psychology of how people think about

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<v Speaker 1>the economy, and so those appointments are very important. And

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<v Speaker 1>then beyond just the board of governors, the president also

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<v Speaker 1>nominates from among the governors, nominates people to very important positions,

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<v Speaker 1>including chair, and there are two vice chair positions on

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<v Speaker 1>the board as well, so the president gets to influence

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<v Speaker 1>the board when those slots come open. Now, those nominees

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<v Speaker 1>are subject to confirmation by the Senate, so there is

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<v Speaker 1>a little bit of a check there, But certainly the

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<v Speaker 1>Senate does try to respect when a president nominates people

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<v Speaker 1>for the board, to honor the resident's decisions, assuming that

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<v Speaker 1>those nominees are qualified and all of those things.

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<v Speaker 4>So that's the most direct and important way.

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<v Speaker 1>But also presidents do try to apply pressure privately.

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<v Speaker 4>When they meet with the Fed.

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<v Speaker 1>When they talk to the chair of the Fed in private,

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<v Speaker 1>they express their opinions on the economy and interest rates

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<v Speaker 1>and other matters that the Fed is dealing with. And

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<v Speaker 1>so historically we do know that presidents have expressed their

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<v Speaker 1>preferences and expressed their desires to Fed officials in private

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<v Speaker 1>as well.

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<v Speaker 2>So that's the traditional playbook for how things work between

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<v Speaker 2>the Federal Reserve and the White House. But is there

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<v Speaker 2>a potential that if Donald Trump is reelected that he

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<v Speaker 2>could change the rules, change the playbook. Is this a

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<v Speaker 2>matter that markets need to be worried about.

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<v Speaker 1>Well, I think markets are paying attention, right, because stability, continuity,

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<v Speaker 1>a belief in the independence of the Federal Reserve is

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<v Speaker 1>kind of one of the bedrocks of our economy, and

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<v Speaker 1>so the idea that a president could put me come

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<v Speaker 1>in and try to undermine some of that, I think

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<v Speaker 1>would certainly be concerning for markets, particularly the bond market.

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<v Speaker 1>But when I talk to constitutional scholars and FED historians

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<v Speaker 1>about this, there are a lot of guardrails around the

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<v Speaker 1>FED that does somewhat insulate them from interference. For instance,

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<v Speaker 1>it is legal scholars tell me very difficult to remove

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<v Speaker 1>members of the board because of for cause, a clause

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<v Speaker 1>that is in the Federal Reserve Act, which is the

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<v Speaker 1>law that created the Federal Reserve and really governs it. Right,

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<v Speaker 1>in order to remove a FED governor, they have to

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<v Speaker 1>do something that is for cause, which is generally thought

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<v Speaker 1>to mean something that is serious misconduct or malfeasan something

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<v Speaker 1>like that, And so a lot of legal scholars say, look,

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<v Speaker 1>it would be very difficult to do that. But again,

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<v Speaker 1>Donald Trump is not a traditional person. He was not

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<v Speaker 1>a traditional president, and so I think that's why some

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<v Speaker 1>of the speculation comes around whether he might try to

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<v Speaker 1>do things that haven't been tried in the past.

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<v Speaker 2>So that's kind of the concern for markets. Does this

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<v Speaker 2>issue matter to voters? What has Joe Biden been saying

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<v Speaker 2>about the Fed?

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<v Speaker 1>One thing we do know is that the economy matters

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<v Speaker 1>a lot to voters this coming presidential election. A lot

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<v Speaker 1>of Americans are focused on inflation. They're focused on what

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<v Speaker 1>the FED is doing to bring down inflation. They're focused

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<v Speaker 1>on this idea that the FED might hold interest rates

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<v Speaker 1>at this high level where they are now in order

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<v Speaker 1>to continue to bring inflation down to the Fed's two

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<v Speaker 1>percent goal. And so, to the extent that voters care

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<v Speaker 1>about the FED lowering inflation, bringing some relief on prices

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<v Speaker 1>to people's budgets and wallets, they're going to care what

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<v Speaker 1>is happening with the Federal Reserve and.

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<v Speaker 4>The dialogue around the Federal Reserve.

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<v Speaker 1>Now, Joe Biden has been pretty traditional in his approach

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<v Speaker 1>to the Federal Reserve. He hasn't really commented publicly on

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<v Speaker 1>Fed policy or interest rate policy. He has predicted that

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<v Speaker 1>the FED will cut rates this year. He's predicted that twice,

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<v Speaker 1>doubling down recently on an earlier comment that he believed

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<v Speaker 1>that the FED.

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<v Speaker 4>Would cut rates so that was a little surprising.

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<v Speaker 1>But generally speaking, he hasn't really commented publicly on the FED,

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<v Speaker 1>and his administration actually recently released a blog post talking

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<v Speaker 1>about how much they value central bank independence because they

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<v Speaker 1>believe that ultimately allows for better monetary policy outcomes.

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<v Speaker 2>Okay, Amaram Okway, our Federal Reserve reporter, thank you very

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<v Speaker 2>much for joining us. For more explanations like this from

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<v Speaker 2>our team of twenty seven hundred journalists and analysts from

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<v Speaker 2>around the world, search for Quick Take on the Bloomberg

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<v Speaker 2>website or Bloomberg Business App. I'm Stephen Carol. This is

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<v Speaker 2>here's why. I'll be back with more next week. Thanks

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<v Speaker 2>for listening.