Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I'm Stephen Carol and this is Here's Why, where we
Speaker 2: take one news story and explain it in just a
Speaker 2: few minutes with our experts here at Bloomberg.
Speaker 3: It is my pleasure and my honor to announce my
Speaker 3: nomination of Jerome Powell to be the next Chairman of
Speaker 3: the Federal Reserve. Based on his record, I am confident
Speaker 3: that Jay has the wisdom and leadership to guide our
Speaker 3: economy through any challenges that our great economy may face.
Speaker 2: It was a relationship that started well, but during Donald
Speaker 2: Trump's time in the White House things changed.
Speaker 4: I think the Fed is out of control. I think
Speaker 4: what they're doing is wrong. He is so far made
Speaker 4: a lot of bad decisions.
Speaker 3: In my opinion, we have some tremendous opportunities right now,
Speaker 3: but Jerome Powell is not making it.
Speaker 2: Trump has repeated some of those comments in his campaign
Speaker 2: for re election this year. Jerome Powell hasn't responded directly,
Speaker 2: but at this speech in April, the FED chair outlined
Speaker 2: the case for the Central Banks independence.
Speaker 5: Such independence for a federal agency is and should be rare.
Speaker 5: In the case of the FED, independence is essential to
Speaker 5: our ability to serve the public. The record shows that
Speaker 5: independent central banks deliver better economic outcomes. We recognize that
Speaker 5: we need to continually earn this granted independence, and we
Speaker 5: do so by carrying out our work with technical competence
Speaker 5: and objectivity in a transparent and accountable manner, and by
Speaker 5: sticking to our knitting.
Speaker 2: With the possibility of another Trump presidency on the horizon,
Speaker 2: it's an issue that's back in focus. In fact, some
Speaker 2: of Trump's informal advisors have recently floated ideas which could
Speaker 2: give the president more control over the Central Bank. So
Speaker 2: here's why Trump being re elected could spell trouble for
Speaker 2: the FED. Our Federal Reserve reporter Amera Mouquay joins me
Speaker 2: now for more high amer great to have you with us.
Speaker 2: First of all, what are these ideas that are being floated?
Speaker 2: Where are they coming from?
Speaker 1: So in recent weeks, reporting has come out both from
Speaker 1: us here at Bloomberg and other outlets like the Wall
Speaker 1: Street Journal that informal and outside advisors are kind of
Speaker 1: putting forth proposals and thinking of ideas that could potentially
Speaker 1: curb the independence of the Federal Reserve. So some of
Speaker 1: those ideas, for instance, are allowing the president to have
Speaker 1: more of a say in interest rate decisions, or allowing
Speaker 1: the president to find a way to fire the FED
Speaker 1: chair Jerome Palell before his term as chair is up
Speaker 1: in twenty twenty six. So these are things that are
Speaker 1: really radical ideas. Right, Presidents have generally respected the independence
Speaker 1: of the Federal Reserve. They definitely have not had a
Speaker 1: say in interest rate decisions at the Federal Reserve because
Speaker 1: the idea is that you want the central bank to
Speaker 1: be independent so that it can make decisions that are
Speaker 1: best for the economy without consideration.
Speaker 4: Or fear of political retribution.
Speaker 1: And so this reporting has really raised speculation that former
Speaker 1: President Trump, if he were to be reelected, could tamper
Speaker 1: with the FED. And there's a good history there to
Speaker 1: suggest that Trump could take an untraditional posture towards the
Speaker 1: FED because during his presidential term he very publicly criticized
Speaker 1: the FED and Jerome Powell during a time when the
Speaker 1: central bank was raising interest rates, and that really breaks
Speaker 1: with the president that presidents have embraced of really not
Speaker 1: publicly criticizing the FED so that it can have that
Speaker 1: independence to make policy.
Speaker 2: Yeah, indeed, it was one of the things that we
Speaker 2: followed at Bloomberg quite closely some of the commentary that
Speaker 2: Donald Trump made while he was president about Jerome Powell.
Speaker 2: I think it's probably fair to say that he's not
Speaker 2: a fan of the Federal Reserve Chair.
Speaker 1: Very fair to say that, as we were just talking about,
Speaker 1: he very publicly criticized Jerome Powell during his presidential term,
Speaker 1: and he's already said that if he were to be
Speaker 1: re elected, he would not reappoint Chair Pale as chair,
Speaker 1: And very fair to say that they had a testing relationship,
Speaker 1: at least publicly in the past.
Speaker 2: So concretely, what influence can a president exert over the
Speaker 2: Federal Reserve?
Speaker 1: So the biggest influence that a president has is appointments. Right,
Speaker 1: So there is a board of governors at the Federal Reserve,
Speaker 1: and when slots come open, the president nominates people to
Speaker 1: fill those slots. And obviously the Central Bank is very
Speaker 1: important for the trajectory of the economy. They set interest rates,
Speaker 1: they can influence the psychology of how people think about
Speaker 1: the economy, and so those appointments are very important. And
Speaker 1: then beyond just the board of governors, the president also
Speaker 1: nominates from among the governors, nominates people to very important positions,
Speaker 1: including chair, and there are two vice chair positions on
Speaker 1: the board as well, so the president gets to influence
Speaker 1: the board when those slots come open. Now, those nominees
Speaker 1: are subject to confirmation by the Senate, so there is
Speaker 1: a little bit of a check there, But certainly the
Speaker 1: Senate does try to respect when a president nominates people
Speaker 1: for the board, to honor the resident's decisions, assuming that
Speaker 1: those nominees are qualified and all of those things.
Speaker 4: So that's the most direct and important way.
Speaker 1: But also presidents do try to apply pressure privately.
Speaker 4: When they meet with the Fed.
Speaker 1: When they talk to the chair of the Fed in private,
Speaker 1: they express their opinions on the economy and interest rates
Speaker 1: and other matters that the Fed is dealing with. And
Speaker 1: so historically we do know that presidents have expressed their
Speaker 1: preferences and expressed their desires to Fed officials in private
Speaker 1: as well.
Speaker 2: So that's the traditional playbook for how things work between
Speaker 2: the Federal Reserve and the White House. But is there
Speaker 2: a potential that if Donald Trump is reelected that he
Speaker 2: could change the rules, change the playbook. Is this a
Speaker 2: matter that markets need to be worried about.
Speaker 1: Well, I think markets are paying attention, right, because stability, continuity,
Speaker 1: a belief in the independence of the Federal Reserve is
Speaker 1: kind of one of the bedrocks of our economy, and
Speaker 1: so the idea that a president could put me come
Speaker 1: in and try to undermine some of that, I think
Speaker 1: would certainly be concerning for markets, particularly the bond market.
Speaker 1: But when I talk to constitutional scholars and FED historians
Speaker 1: about this, there are a lot of guardrails around the
Speaker 1: FED that does somewhat insulate them from interference. For instance,
Speaker 1: it is legal scholars tell me very difficult to remove
Speaker 1: members of the board because of for cause, a clause
Speaker 1: that is in the Federal Reserve Act, which is the
Speaker 1: law that created the Federal Reserve and really governs it. Right,
Speaker 1: in order to remove a FED governor, they have to
Speaker 1: do something that is for cause, which is generally thought
Speaker 1: to mean something that is serious misconduct or malfeasan something
Speaker 1: like that, And so a lot of legal scholars say, look,
Speaker 1: it would be very difficult to do that. But again,
Speaker 1: Donald Trump is not a traditional person. He was not
Speaker 1: a traditional president, and so I think that's why some
Speaker 1: of the speculation comes around whether he might try to
Speaker 1: do things that haven't been tried in the past.
Speaker 2: So that's kind of the concern for markets. Does this
Speaker 2: issue matter to voters? What has Joe Biden been saying
Speaker 2: about the Fed?
Speaker 1: One thing we do know is that the economy matters
Speaker 1: a lot to voters this coming presidential election. A lot
Speaker 1: of Americans are focused on inflation. They're focused on what
Speaker 1: the FED is doing to bring down inflation. They're focused
Speaker 1: on this idea that the FED might hold interest rates
Speaker 1: at this high level where they are now in order
Speaker 1: to continue to bring inflation down to the Fed's two
Speaker 1: percent goal. And so, to the extent that voters care
Speaker 1: about the FED lowering inflation, bringing some relief on prices
Speaker 1: to people's budgets and wallets, they're going to care what
Speaker 1: is happening with the Federal Reserve and.
Speaker 4: The dialogue around the Federal Reserve.
Speaker 1: Now, Joe Biden has been pretty traditional in his approach
Speaker 1: to the Federal Reserve. He hasn't really commented publicly on
Speaker 1: Fed policy or interest rate policy. He has predicted that
Speaker 1: the FED will cut rates this year. He's predicted that twice,
Speaker 1: doubling down recently on an earlier comment that he believed
Speaker 1: that the FED.
Speaker 4: Would cut rates so that was a little surprising.
Speaker 1: But generally speaking, he hasn't really commented publicly on the FED,
Speaker 1: and his administration actually recently released a blog post talking
Speaker 1: about how much they value central bank independence because they
Speaker 1: believe that ultimately allows for better monetary policy outcomes.
Speaker 2: Okay, Amaram Okway, our Federal Reserve reporter, thank you very
Speaker 2: much for joining us. For more explanations like this from
Speaker 2: our team of twenty seven hundred journalists and analysts from
Speaker 2: around the world, search for Quick Take on the Bloomberg
Speaker 2: website or Bloomberg Business App. I'm Stephen Carol. This is
Speaker 2: here's why. I'll be back with more next week. Thanks
Speaker 2: for listening.