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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: I guess the potential FED chair is here too.

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Speaker 3: I don't know. Always allowed to say that potential.

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Speaker 2: He's a respected person that I can tell you.

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Speaker 3: Thank you, Kevin. I'm Stephanie Flanders, head of Government and

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Speaker 3: Economics at Bloomberg, and this is trump Anomics, the podcast

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Speaker 3: that looks at the economic world of Donald Trump, how

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Speaker 3: he's already shaped the global economy and what on a

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Speaker 3: is going to happen next. This week we're asking what

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Speaker 3: happens if Kevin Hassett gets the top job at the FED. Well,

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Speaker 3: for those who haven't been following the apprentice like competition

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Speaker 3: for the next chair of the US Central Bank, here's

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Speaker 3: a quick summary. The current chair of the FED, Jerome Powell.

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Speaker 3: His term as chair ends in May next year. There

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Speaker 3: are five candidates on President Trump's shortlist to replace him.

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Speaker 3: We're expecting the President to name his pick in the

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Speaker 3: next few weeks, and last week Bloomberg reported that it

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Speaker 3: was looking very likely to be Kevin Hassett, the current

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Speaker 3: director of Donald Trump's National Economic Council. Well, things might change,

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Speaker 3: of course, we are talking about President Trump, but right

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Speaker 3: now we thought it was worth asking, indeed what a

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Speaker 3: Hasset FED might meet for markets, for the US economy

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Speaker 3: and long term for the Federal Reserve. Whether the worriers

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Speaker 3: about this are right to fret about having a Trump

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Speaker 3: loyalist as the chair of the world's most important central bank. Well,

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Speaker 3: if you're a dedicated listener to this podcast with a

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Speaker 3: good memory, you might remember that our chief US economist,

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Speaker 3: Anna Wong has thought for a while that President Trump

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Speaker 3: was most likely to pick Kevin Hassett, with whom she

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Speaker 3: worked in the first Trump administration on the Council of

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Speaker 3: Economic Advisors. Well, here exactly why she thought Kevin Hassett

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Speaker 3: was the most likely in a moment, but I might

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Speaker 3: point out that Kevin hasse seems to have a good

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Speaker 3: opinion of Anna wall That might be one reason why

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Speaker 3: he was willing to sit down for a forty five

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Speaker 3: minute conversation with her at a recent Bloomberg event we

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Speaker 3: had in Washington. You could look it up on YouTube.

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Speaker 3: I would say it is in some parts quite a

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Speaker 3: nerdy chat between two economists. But on the subject of

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Speaker 3: the FED, Kevin Hassett did make the point that it's

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Speaker 3: not anything new to have a member of the president's

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Speaker 3: team move over to a senior role at the FED.

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Speaker 4: I think the idea that government service makes it less

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Speaker 4: likely that you'll pursue an independent FED basically rejects the

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Speaker 4: evidence of what is it the five Council of Ecadomic

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Speaker 4: Advisor chairfs that went on to be independent FED people.

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Speaker 4: And so I think it's a very common path for

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Speaker 4: people who have worked in the White House to go

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Speaker 4: on and to work well at the FED, and to

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Speaker 4: do so independently.

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Speaker 3: Well. Anna is joining me now from our New York office,

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Speaker 3: as is senior Washington reporter Seleia Mostly, who was the

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Speaker 3: one who reported last week that Hassett was now top

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Speaker 3: of the president's list. Anna, Celia, great to have.

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Speaker 2: You, good to be here.

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Speaker 1: Good to see you.

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Speaker 3: Now, Seleia. Obviously you can't reveal what led you directly

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Speaker 3: to write your story the other day. He's really been

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Speaker 3: high on most people's lists for a while. Why did

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Speaker 3: you press the button on saying you really thought it

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Speaker 3: was looking like him?

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Speaker 1: It's been an interesting year when it comes to just

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Speaker 1: the FED chair selection process, if we just narrow that

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Speaker 1: lens right there. So Bloomberg News has been ahead of

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Speaker 1: the curve on this reporting in June, one of our colleagues,

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Speaker 1: Nancy Cook and Katerinas Arieva, reported that Kevin Hassett had

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Speaker 1: a great interview with Trump. They discussed the FED inside

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Speaker 1: the White House, the chairmanship role, and that's when things

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Speaker 1: started to kind of shift. The other part of the

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Speaker 1: narrative is that Trump does not like that there are

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Speaker 1: agencies that are outside of executive branch control. And now

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Speaker 1: he's been looking for many, many months, and you could

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Speaker 1: say years, at how he can exert some control over

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Speaker 1: the Federal Reserve. Now, traditionally that is done through personnel.

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Speaker 1: Any sitting president has the ability to choose who fills

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Speaker 1: the FED Board of Governors, including the chair, and Trump

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Speaker 1: is using those ways into the FED to put a

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Speaker 1: loyalist in.

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Speaker 3: We're speaking now on Tuesday, the second of December. It's

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Speaker 3: been around in a week since you wrote that Kevin

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Speaker 3: has it was looking very likely. Has anything happened in

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Speaker 3: the last few days, any of the comments from the

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Speaker 3: President that we've heard made you change your mind or

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Speaker 3: think mcgrian might be moving again.

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Speaker 1: If anything, the public perception matches my own perception, which

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Speaker 1: is that I feel like our report is even more

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Speaker 1: accurate this past Sunday, Kevin Hassett was on CBS's Face

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Speaker 1: the Nation, and at the end of that inner view,

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Speaker 1: he was asked directly if the Bloomberg report was accurate,

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Speaker 1: and he had a big smile on his face. Did

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Speaker 1: yours go?

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Speaker 5: You know, I am, I'm not sure that Blueberg has

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Speaker 5: a story right. I'm really honored to be amongst a

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Speaker 5: group of really great candidates.

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Speaker 3: Excellent lament for the person.

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Speaker 1: He had a big smile on his face and he said, no,

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Speaker 1: I don't know that that report is completely accurate. But

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Speaker 1: then he points to the positive market reaction.

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Speaker 5: If you look at the market response to that, it

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Speaker 5: was very, very positive. We had a great treasury auction.

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Speaker 5: Interest rates went down, and so I think that the

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Speaker 5: American people could expect President Trump to pick somebody who's

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Speaker 5: going to help them, you know, have cheaper car loans

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Speaker 5: and easier access to mortgages at lower rates.

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Speaker 1: He had key bullet points on what happened in markets

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Speaker 1: once that story hit the wires, and the one question

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Speaker 1: around Hassett and whoever Trump may choose for FED chair

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Speaker 1: has been can this person maintain credibility with markets but

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Speaker 1: still be able to cope with a president Trump, who

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Speaker 1: was also in the world and who could be calling

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Speaker 1: him a stubborn ox or a bonehead at any given point,

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Speaker 1: things that Trump has done to j Powell, the current

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Speaker 1: FED chair, that moment on face the nation, in the

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Speaker 1: fact that the White House, in our story on the record,

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Speaker 1: there was no pushback. It was just, well, Trump's going

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Speaker 1: to pick, who's going to pick when he's ready.

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Speaker 3: It sounds like he was even trying to make sure

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Speaker 3: there would be any change of mind, to try and

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Speaker 3: remove any last bit of doubt from President Trump's mind.

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Speaker 3: I mean, Anna, I mentioned you've always said you thought

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Speaker 3: so that the most likely pick. Knowing how you experienced

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Speaker 3: you'd had in the Trump administration, and knowing that the

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Speaker 3: various candidates as you did, why did you think he

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Speaker 3: was always the most likely?

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Speaker 2: Yeah.

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Speaker 6: So the candidate we have in the pool of people

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Speaker 6: auditioning for this role are Kevin has It, Kevin Walsh,

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Speaker 6: Chris Waller, Bowman. But our criteria, my criteria for Trump's

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Speaker 6: pick is number one, loyalty, as you said, Celenia, and

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Speaker 6: on that count, Kevin has scored the highest amongst this

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Speaker 6: entire pool of candidate because he has a long working

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Speaker 6: relationship with Trump, and he delivered some of the key

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Speaker 6: legislation that Trump is most proud of, the text Jobs

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Speaker 6: and Cuts Act, that is a major Coudle points to

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Speaker 6: Kevin has It. He not only helped craft it, he

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Speaker 6: also messaged it, He also marketed. He also fought for it,

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Speaker 6: and afterwards he also defended it. And also during the coronavirus,

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Speaker 6: Kevin has It came back and partly reflecting his loyalty

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Speaker 6: and also patriotism, maybe because the reason why he left

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Speaker 6: CEA was because he was working long hours. This was

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Speaker 6: all detailed in his twenty twenty one memoir The Drift.

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Speaker 6: So in that book he talked about how he was

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Speaker 6: working sixty eighty hours every day in Cia and then

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Speaker 6: he suddenly felt this heart tightness in the chest. Well,

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Speaker 6: he drove himself to the hospital and turned out he

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Speaker 6: was having some kind of heart attack, and that was

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Speaker 6: why he has to you know exit. The reason why

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Speaker 6: he quietly drove himself to the hospital was he also

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Speaker 6: didn't want to attract any fanfare. He wrote in the book,

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Speaker 6: how like the media would have so much to write

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Speaker 6: about if they caught win of him, you know, having

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Speaker 6: this episode. So fast forward to the second Trump He

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Speaker 6: also helped message this.

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Speaker 2: One big, beautiful bill.

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Speaker 6: And the role of National Economic Council Director is more

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Speaker 6: influential than the CEA chair in the sense that you

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Speaker 6: are actually helping to create an usher do policy, where

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Speaker 6: CEA oftentimes the chair was.

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Speaker 2: It serves more like a think tank within the White.

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Speaker 3: House, a bit more academic.

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Speaker 6: Yes, yeah, so in a way for any economist who

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Speaker 6: dreamed about having luins over how policies are crafted, this

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Speaker 6: has its role. His role is definitely more elevated in

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Speaker 6: this second Trump, which suggests to me that he in

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Speaker 6: Trump's mind, he is asked that his status as an

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Speaker 6: economy is also much higher.

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Speaker 3: I suspect that his book is going to be rising

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Speaker 3: in the Amazon charts given the recent stories. Everyone's going

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Speaker 3: to be reading that. I was not aware of that story,

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Speaker 3: but it does make some sense out of one of

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Speaker 3: the exchanges you had in this conversation at Bloomberg at

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Speaker 3: the Washington offices a few weeks ago, where you talked

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Speaker 3: about how he would maybe have few hours if he

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Speaker 3: went to the FED. But you talked about a lot

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Speaker 3: of things in that conversation. He talked about tariffs, talked

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Speaker 3: about the budget. He was very on message, you would say,

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Speaker 3: from a sort of Trump perspective, did anything he say

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Speaker 3: make you change your view of what a Hasset led

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Speaker 3: Federal Reserve would look like? How he might affect the FED.

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Speaker 6: I think one of the biggest issue facing the next

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Speaker 6: FED chairman and the FED overall is to determine whether

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Speaker 6: we are indeed going through a productivity boom, because productivity

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Speaker 6: boom does not show up in macro data cleanly. It

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Speaker 6: just doesn't, and in the nineteen nineties it takes several

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Speaker 6: years and after rounds of revisions before it became apparent.

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Speaker 6: And in that conversation with Hasset, he seemed very aware

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Speaker 6: of that. In fact, I thought he went a little

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Speaker 6: bit way too enthusiastic about accepting that the productivity boom

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Speaker 6: is already here.

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Speaker 4: One of the interesting puzzles is that first, we're having

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Speaker 4: a productivity boom that is really unprecedented in the following

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Speaker 4: sense that when I worked with Alan Greenspan back in

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Speaker 4: the nineties, it was just at the dawn of the

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Speaker 4: computer age.

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Speaker 6: Really, Whereas in fact, I think it is a very

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Speaker 6: polarizing issues among economists because if you survey all economists,

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Speaker 6: half of them would say there's no productivity boom. So

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Speaker 6: I think that it could be very quite likely be

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Speaker 6: that Kevin has it is right that a productivity boom

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Speaker 6: is happening unbeknownst to many macroeconomists.

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Speaker 3: But I think it's also.

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Speaker 6: Important for a future FED chair to acknowledge the lack

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Speaker 6: of evidence and try to like bridge together, you know,

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Speaker 6: a consensus amongst people who think differently.

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Speaker 3: There was an interesting moment in that interview. He said,

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Speaker 3: you know, there's nothing particularly special about having a political

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Speaker 3: you know, it's obviously it is a political appointment. And

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Speaker 3: you've had economists move over from the White House to

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Speaker 3: run the FED before, which is absolutely true. But in

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Speaker 3: the past that hasn't been after a very or not

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Speaker 3: in recent times, that hasn't been after a very public

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Speaker 3: row between the White House and the FED, or a

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Speaker 3: disagreement that the White House has had about FED policy

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Speaker 3: which the candidate has actively sided with the president on.

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Speaker 3: And I just wonder from your perspective, I mean, you

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Speaker 3: talk to people across the economic world and markets as

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Speaker 3: well as Washington, how tainted do you think Kevin has

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Speaker 3: its arguments are going to be when he puts these

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Speaker 3: kind of lines that support in effect the president's desire

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Speaker 3: to have lower interest rates.

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Speaker 2: That's an interesting question.

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Speaker 1: I would have assumed that when Stephen Myron was nominated

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Speaker 1: to take the short term slot that opened up on

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Speaker 1: the FED board when Adriana Kougler resigned, I thought that

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Speaker 1: markets would have a big tantrum and that the Senate

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Speaker 1: Banking Committee would also have a big tantrum over Stephen

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Speaker 1: Myron going straight from the CEA to the FED on

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Speaker 1: leave from.

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Speaker 2: The White House for that role.

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Speaker 1: And there was not a blink from anyone.

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Speaker 2: Really.

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Speaker 1: There was a couple of tense moments ooh in the

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Speaker 1: Senate during the hearing, right nothing really. Markets were also

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Speaker 1: fine with it. So we're seeing that either the FED

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Speaker 1: is like in a too big to fail category, where

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Speaker 1: like it's not possible that we start questioning their credibility

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Speaker 1: because the world cannot handle it. Therefore, we just will

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Speaker 1: keep rolling with it. And so Hassett gets through the Senate.

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Speaker 1: Mark Warnerer, a senator on the Banking Committee, was at

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Speaker 1: the Bloomberg Washington office recently, and this is before reading

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Speaker 1: that Hassett was a front runner, and he did remark

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Speaker 1: that I have a good relationship with Kevin Hasset. Warner

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Speaker 1: as a Democrat, right, So Hassett has relationships on both

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Speaker 1: sides of the aisle. The Senate does like to respect

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Speaker 1: any president's wishes when it comes to personnel. He has

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Speaker 1: the right to he or she has the right to

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Speaker 1: choose who should be nominated. They vet everyone. Now the

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Speaker 1: Senate has failed on certain events because we're seeing that

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Speaker 1: there's some ethics scandals that keep kind of popping up

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Speaker 1: at the FED, and maybe the Senate hasn't grilled candidates enough.

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Speaker 1: There's questions around other FED appointees from the Biden era

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Speaker 1: of who ended up at the FED and if they

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Speaker 1: were fully qualified. Things like that are coming up in

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Speaker 1: the ether. But if we have Kevin Hassett become FED chair,

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Speaker 1: that means he's Marcus have now absorbed it right. He

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Speaker 1: was right to point out there was no big reaction.

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Speaker 1: That's a big plus for him. Now it's up to

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Speaker 1: the Senate to properly vet him, but his credibility is there.

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Speaker 1: Once he's in the chair seat, he has a whole

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Speaker 1: FMC board. There are defense mechanisms at the FED in

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Speaker 1: place to deal with any kind of efforts to politicize

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Speaker 1: the FED. Now, Trump is a very strong adversary on

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Speaker 1: that front. But now we are testing those defense mechanisms

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Speaker 1: across the United States, across democracy, across the capital, and

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Speaker 1: now it's making it to the Eccles building.

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Speaker 3: And you make the point, his is only one voice.

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Speaker 3: It's a very consensus based organization, and the know as well,

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Speaker 3: and you don't, you don't tend to have a lot

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Speaker 3: of dissent, but his will only be one vote. So

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Speaker 3: I guess one of the key things that people are

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Speaker 3: looking at is whether the president, either directly or indirectly,

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Speaker 3: gets to change the broader makeup of the board. And

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Speaker 3: there obviously we had this important case coming up or

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Speaker 3: judgment coming up with the Supreme Court. So just remind

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Speaker 3: us where we stand on that, because there's a sort

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Speaker 3: of key aspect of quite how many slops the president

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Speaker 3: might end up being able to fill.

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Speaker 2: Right.

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Speaker 1: So the summer, like I said, was really interesting, and

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Speaker 1: June it was the Okay, Hassett has a great, you know,

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Speaker 1: knock it out of the park interview with Trump. In July,

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Speaker 1: we see the Bill Poulty, the FHFA director. For some reason,

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Speaker 1: he comes out with comments against Powell, saying that he

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Speaker 1: should be tried in the courts or rejected from his

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Speaker 1: job for the way that the FED has spent on

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Speaker 1: some of the renovations. And then by early August, Poulty

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Speaker 1: had made public some very old mortgage documents belonging to

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Speaker 1: Lisa Cook, a Biden appointee to the FED Board, that

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Speaker 1: there are some discrepancies in there. And then Trump puts

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Speaker 1: out a post on truth Social that says I'm firing

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Speaker 1: Lisa Cook for pause because she should not have this.

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Speaker 2: Job if she has been violating mortgage laws.

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Speaker 1: And it turns out that there's some intricacies there, the

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Speaker 1: purp violations happened before she was Fed governor, and that

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Speaker 1: maybe they were actually above board. So that case has

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Speaker 1: gone to the Supreme Court. Trump right now is not

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Speaker 1: able to block her and remove her from the Fed.

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Speaker 3: We have a.

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Speaker 1: Hearing in January mid January where the Supreme Court will

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Speaker 1: hear oral arguments. We're going to hear a little bit

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Speaker 1: more about that. The other very exciting thing that happened

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Speaker 1: in August, around the time that the Lisa Cook attempt

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Speaker 1: at firing happened, was that Audrina Kugler, also a Biden

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Speaker 1: appointee to the FED Board, resigned abruptly so that is

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Speaker 1: the slot that Steve Myron has taken that expires end

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Speaker 1: of January early February. And if it is Hassett who

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Speaker 1: gets the nomination for chair, that is probably the slot

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Speaker 1: that he gets is the seat that now Steve Myron holds.

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Speaker 2: And then we have the excitement of j.

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Speaker 1: Powell because his chairmanship ends in May, but his term

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Speaker 1: as a governor he has two more years on it.

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Speaker 2: Now.

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Speaker 1: Traditionally usually you will see a chair just completely step down.

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Speaker 1: Palell has been through a lot. He has publicly been

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Speaker 1: called names by the President of the United States. It's

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Speaker 1: not an easy thing. I think it's taken a toll

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Speaker 1: on him and maybe even his family. He has refrained

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Speaker 1: from saying whether he will step down, and you just

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Speaker 1: have to wonder is he just waiting to see who

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Speaker 1: is the pick and how does those first few weeks

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Speaker 1: or first few months pan out before he decides leave,

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Speaker 1: or he could say I'm just a governor. I'm not

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Speaker 1: going to head up any committees. I'm in my office

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Speaker 1: and I'll show up when I need to go to

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Speaker 1: an FMC meeting and deal with Hassett.

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Speaker 3: And that you mentioned it and the piece you wrote

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Speaker 3: about what a hasse FED would look like you highlight

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Speaker 3: that there are more significant shifts of direction of bed

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Speaker 3: that you could see if you saw a further step

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Speaker 3: or down this road, which is a potential change in

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Speaker 3: the regional fed governors.

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Speaker 6: Yes, so regional FED presidents they get reappointed by the

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Speaker 6: Board of Governors. So there are seven individuals on the

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Speaker 6: Board of the Governors and there are twelve regional presidents.

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Speaker 6: And the deadline usually is by the end of February

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Speaker 6: of every year that ends either at twenty twenty six

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Speaker 6: or twenty thirty one in five year increments. So there's

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Speaker 6: an opportunity for Trump if he wants to, you know,

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Speaker 6: if he somehow could get at least four people on

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Speaker 6: the Board of Governors to reject the reappointment of some

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Speaker 6: of these regional fed The opening is twenty twenty sixth February.

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Speaker 6: So this is why the timing of that Lisa Cook

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Speaker 6: case is extremely important. So if the hearing happens in

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Speaker 6: mid January, as Slea said, then the ruling likely will

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Speaker 6: come way after January, after the deadline for this re appointment,

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Speaker 6: which means that likely Lisa Cooke would stay in place

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Speaker 6: until at least February of twenty twenty six. So regardless

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Speaker 6: of what the Supreme Court does, just because the ruling

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Speaker 6: will happen after February, it's unlikely that Trump will have

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Speaker 6: the four votes on the board to be able to

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Speaker 6: remove regional FED presidents.

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Speaker 3: So, Silih, there was one thing that you've been talking

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Speaker 3: about that I thought was interesting, And it's very much

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Speaker 3: part of the President's kind of modus operandi that he

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Speaker 3: will spot something where some opinion is kind of quietly

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Speaker 3: changing behind the scenes, but he takes it further. You've

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Speaker 3: been spotting a bit of that when it comes to

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Speaker 3: the FED in the possible future direction of the FED.

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Speaker 1: Yeah, you know, we are at a point in American

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Speaker 1: history where the public's trust of public institutions is that

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Speaker 1: historic lows. And whether the average American thinks about the

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Speaker 1: FED very often hopefully they don't. The Federal Reserve is

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Speaker 1: part of that low, that lack of trust, and some

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Speaker 1: of that has to do, of course, with just the

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Speaker 1: continued hangover from the global financial crisis that oh, everyone

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Speaker 1: got these golden parachutes, the FED bailed everyone else out

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Speaker 1: except for the average man, and we're still stuck in

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Speaker 1: the muck.

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Speaker 3: And they had one job, which was to prevent inflation,

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Speaker 3: and they failed on that.

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Speaker 1: Well, let's talk about that one, because we are at

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Speaker 1: a point where the whole generation, my generation didn't know

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Speaker 1: what it was like to face inflation, because the last

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Speaker 1: time was around the time I was born.

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Speaker 2: In the early eighties.

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Speaker 1: You have a generation that has never seen this. And

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Speaker 1: then you have policymakers who at the time it was

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Speaker 1: Janet Allen, the treasure secretary under Biden and j Powell.

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Speaker 1: You had Janet Allen speaking as a Treasury secretary but

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Speaker 1: sounding like a Fed official a FED chair, saying this

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Speaker 1: is transitory, and Powell also saying this is transitory. And

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Speaker 1: what that means is that the family at the grocery

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Speaker 1: store checkout that has to decide do we complete our

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Speaker 1: food shopping or do we buy another pair of cleat

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Speaker 1: soccer cleats for our growing teenage boy. We can't afford both.

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Speaker 1: When someone says transitory, they're saying your pain is going

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Speaker 1: to pass. It's not a big deal. So trust plummeted

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Speaker 1: even more, and so it is natural for elected leaders

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Speaker 1: to take a look and say, what went wrong here?

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Speaker 1: How can we do better? When it comes to trust

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Speaker 1: in this institution that is so important to America's economic

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Speaker 1: well being, in the world's economic wellbeing. So Trump has

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Speaker 1: picked up on this angst and this unhappiness with how

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Speaker 1: this is working, but in his own way, which ends

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Speaker 1: up being belligerent, is trying to fix it.

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Speaker 3: Anna. Obviously, the irony of this quite positive reading of

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Speaker 3: how you might interpret the direction the president's taking. He's

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Speaker 3: not just religuing. He's trying to push for lower rates

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Speaker 3: in an environment where people have lost their fait in

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Speaker 3: the central bank in large part because of their failure

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Speaker 3: to control inflation. So this just it seems like a

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Speaker 3: potential recipe for not answering those concerns and actually, if anything,

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Speaker 3: making it worse.

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Speaker 6: I believe President Trump has mentioned, who wants rates to

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Speaker 6: be cut down to one percent?

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Speaker 3: When you put one percent in one of your models,

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Speaker 3: what does that do to inflation? Just to remind us.

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Speaker 6: So, first of all, you will have a temporary boom

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Speaker 6: through twenty twenty seven, So twenty twenty six and twenty

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Speaker 6: twenty seven more than three four percent GDP growth, Inflation

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Speaker 6: probably will most likely will exceed three percent, probably rising

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Speaker 6: to three point five percent. You know, on that trajectory,

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Speaker 6: and by twenty twenty eight could be that inflation expectations

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Speaker 6: would un anchor a little bit and you'll see credit

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Speaker 6: spreads all rising, and inflation compensation on the longer end

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Speaker 6: of the health curve probably would rise, and all that

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Speaker 6: would lead to a If the FED has not even

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Speaker 6: get in front of this deterioration, it will probably means

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Speaker 6: the FED will have to raise rate by even more

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Speaker 6: in order to get inflation expectations back in control. So

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Speaker 6: that would be the boom and bust cycle, classic boom

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Speaker 6: and bust cycle.

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Speaker 3: But the best that you've just described would be just

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Speaker 3: thinking about the electoral cycle would be amazed, probably after

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Speaker 3: the presidents.

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Speaker 6: Sometime around there. But I also have to say, Stephanie,

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Speaker 6: that that assumes productivity didn't pick up tremendously. And I

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Speaker 6: think one view that Kevin has it would be carrying

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Speaker 6: with him into the FED. It would be his conviction

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Speaker 6: that a productivity boom is happening.

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Speaker 3: You know, we had this conversation around the impact of

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Speaker 3: tariffs a couple of weeks ago, and we made the

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Speaker 3: point that AI and Big AI investments had in some

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Speaker 3: sense protected the economy from some of the negative effects

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Speaker 3: or offset some of the negative effects of TAROT, but

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Speaker 3: Kevin Hassett would say they pointed to a real productivity

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Speaker 3: turnaround that was going to support the economy and make

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Speaker 3: it possible to have faster growth and lower inflation even

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Speaker 3: with lower interest rates. So how much credence do you

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Speaker 3: give in that scenario, that kind of positive AI revolution scenario.

441
00:24:35,480 --> 00:24:38,239
Speaker 6: I think most likely what we'll see if there is

442
00:24:38,560 --> 00:24:42,600
Speaker 6: going to be a productivity boom, would be weak employment

443
00:24:42,920 --> 00:24:47,000
Speaker 6: for a couple of years, because a labor productivity boom

444
00:24:47,400 --> 00:24:50,720
Speaker 6: implies you have higher output per worker, So you could

445
00:24:50,720 --> 00:24:54,080
Speaker 6: have higher output and reduce need for workers, which is

446
00:24:54,119 --> 00:24:57,440
Speaker 6: what we are seeing already reduced need for entry level workers.

447
00:24:58,000 --> 00:25:00,680
Speaker 6: And in fact, I just came back from around table

448
00:25:00,720 --> 00:25:04,400
Speaker 6: today and I saw some very compelling data that shows

449
00:25:04,440 --> 00:25:08,399
Speaker 6: the right slow down and employment growth for entry level

450
00:25:08,840 --> 00:25:12,639
Speaker 6: people in their twenties. That kind of jobs slowed exactly

451
00:25:12,920 --> 00:25:16,399
Speaker 6: around the time where chat GBT was introduced. So I

452
00:25:16,400 --> 00:25:20,160
Speaker 6: think my own forecast is that likely in the next

453
00:25:20,200 --> 00:25:24,200
Speaker 6: year we will see pretty weak non figm payroll growth

454
00:25:24,280 --> 00:25:28,639
Speaker 6: every month, and I think that will give an opening

455
00:25:29,119 --> 00:25:33,200
Speaker 6: for the FED to keep cutting rates, because as part

456
00:25:33,240 --> 00:25:37,280
Speaker 6: of the productivity, the process of increasing productivity there will

457
00:25:37,320 --> 00:25:41,360
Speaker 6: be at first slowed down in employment, and only afterwards

458
00:25:41,400 --> 00:25:46,520
Speaker 6: when firms have increased profits from this productivity growth they

459
00:25:46,560 --> 00:25:50,040
Speaker 6: would invest more. So far has been very concentrated in AI.

460
00:25:50,160 --> 00:25:54,760
Speaker 6: We will need a broadening of this investment boom into

461
00:25:54,880 --> 00:25:59,600
Speaker 6: many other sectors in order to be convinced that it's

462
00:25:59,720 --> 00:26:03,320
Speaker 6: really a total factor of productivity boom. And even that

463
00:26:03,520 --> 00:26:06,280
Speaker 6: is not a sure thing because in the nineteen nineties

464
00:26:06,359 --> 00:26:10,359
Speaker 6: a real wage is actually stagnated even amidst this productivity boom.

465
00:26:10,760 --> 00:26:14,520
Speaker 6: So I just think that the AI element will play

466
00:26:14,560 --> 00:26:18,080
Speaker 6: a key role in determining the path of a FED

467
00:26:18,119 --> 00:26:20,080
Speaker 6: funds rate the next couple of years.

468
00:26:20,560 --> 00:26:26,240
Speaker 3: Continued AI enthusiasm but weak employment growth could potentially enable

469
00:26:26,280 --> 00:26:29,359
Speaker 3: the FED to cut more than we currently expect in

470
00:26:29,400 --> 00:26:31,960
Speaker 3: the first half of next year. But do you think,

471
00:26:32,080 --> 00:26:35,679
Speaker 3: going back to my original point about credibility, do you

472
00:26:35,720 --> 00:26:38,399
Speaker 3: think that Kevin has it if he were coming into

473
00:26:38,440 --> 00:26:44,320
Speaker 3: his first meeting in June as chairman of the Federal Reserve,

474
00:26:45,359 --> 00:26:49,879
Speaker 3: that he could get the majority of the board to

475
00:26:49,960 --> 00:26:51,480
Speaker 3: support a rate cut.

476
00:26:52,000 --> 00:26:54,879
Speaker 6: Well, if Kevin has it, does enter the FED in

477
00:26:55,000 --> 00:26:59,360
Speaker 6: January first as a governor to take over the position

478
00:26:59,520 --> 00:27:03,119
Speaker 6: that Steve Myron FA Kate. Then he has about five

479
00:27:03,320 --> 00:27:08,000
Speaker 6: months to prove himself to the FED staff and FOMC

480
00:27:08,119 --> 00:27:12,119
Speaker 6: members to build his soft power, because ultimately the most

481
00:27:12,200 --> 00:27:16,919
Speaker 6: important trait of a FED chairman is soft power. The

482
00:27:17,240 --> 00:27:21,080
Speaker 6: FOMC has oftentimes been divided in the past. So the

483
00:27:21,160 --> 00:27:24,760
Speaker 6: division that people talk about today and for this FOMC

484
00:27:24,800 --> 00:27:27,879
Speaker 6: meeting next week, for example, where half of the committee

485
00:27:28,080 --> 00:27:31,320
Speaker 6: wants to cut, half of them do not want to cut. Well,

486
00:27:31,359 --> 00:27:33,720
Speaker 6: that kind of division we have seemed before in the

487
00:27:33,840 --> 00:27:36,879
Speaker 6: nineteen nineties, in the nineteen ninety five during the green

488
00:27:36,920 --> 00:27:40,520
Speaker 6: Span era, and we also saw it last year September

489
00:27:40,640 --> 00:27:44,679
Speaker 6: twenty twenty four when the committee was split between cutting

490
00:27:44,720 --> 00:27:49,040
Speaker 6: fifty BIPs versus twenty five fits. And the common denominator

491
00:27:49,080 --> 00:27:54,200
Speaker 6: there is you need a chairman who can shepherd everyone

492
00:27:54,359 --> 00:27:58,760
Speaker 6: toward the view he prefers. And in Kevin Has its case,

493
00:27:59,160 --> 00:28:03,600
Speaker 6: If Has colleagues were to view him with skepticism or

494
00:28:03,800 --> 00:28:07,520
Speaker 6: view his every action as a covert, as he being

495
00:28:07,560 --> 00:28:11,120
Speaker 6: a proxy for Trump, they are not going to go

496
00:28:11,160 --> 00:28:15,359
Speaker 6: along with him. And so ultimately it is soft power

497
00:28:15,440 --> 00:28:19,360
Speaker 6: that matters. And by the way, many of the governors

498
00:28:19,560 --> 00:28:24,560
Speaker 6: and also regional FED presidents will be staying around until

499
00:28:24,640 --> 00:28:29,080
Speaker 6: the twenty thirties, well after even the Trump administration. The

500
00:28:29,920 --> 00:28:33,000
Speaker 6: regional FED presidents, many of them are very young in

501
00:28:33,040 --> 00:28:33,840
Speaker 6: their fifties.

502
00:28:34,160 --> 00:28:35,800
Speaker 3: If they don't get kicked out, yes.

503
00:28:35,640 --> 00:28:38,959
Speaker 6: But again, if they missed the February twenty twenty six window,

504
00:28:39,440 --> 00:28:44,440
Speaker 6: the next opportunity is twenty thirty one. So it's very

505
00:28:44,520 --> 00:28:48,680
Speaker 6: likely all of these hawks, young hawks, mind you, they're

506
00:28:48,720 --> 00:28:51,640
Speaker 6: going to be hanging around. So I think it's really

507
00:28:51,760 --> 00:28:55,120
Speaker 6: up to Kevin has its soft power to convince everyone,

508
00:28:55,160 --> 00:28:59,480
Speaker 6: and I think one thing in favor of his likelihood

509
00:28:59,560 --> 00:29:02,400
Speaker 6: of is that he used to be a FED staff

510
00:29:02,720 --> 00:29:06,560
Speaker 6: and he actually does know several senior people now in

511
00:29:06,600 --> 00:29:10,280
Speaker 6: the FED board. So out of the candidates that we

512
00:29:10,720 --> 00:29:14,760
Speaker 6: talked about earlier, he is the only one who had

513
00:29:14,800 --> 00:29:19,120
Speaker 6: worked at the FED, So I think from the Fed's perspective,

514
00:29:19,160 --> 00:29:22,520
Speaker 6: they would rather have him than the other ones.

515
00:29:23,440 --> 00:29:25,959
Speaker 3: Anyone listening who wants to get a flavor of some

516
00:29:26,080 --> 00:29:31,360
Speaker 3: of the behind the scenes data analysis that Kevin Hassett

517
00:29:31,360 --> 00:29:33,680
Speaker 3: did as a staff at the FED, you should go

518
00:29:33,760 --> 00:29:36,120
Speaker 3: on YouTube and dig out the conversation he had with

519
00:29:36,160 --> 00:29:38,320
Speaker 3: Anna One because they got well into some of those

520
00:29:38,440 --> 00:29:42,640
Speaker 3: debates as well as broader topics on the fed's independence. Anna,

521
00:29:42,720 --> 00:29:44,240
Speaker 3: that was terrific. Thank you very.

522
00:29:44,200 --> 00:29:46,880
Speaker 2: Much, great to have you on, happy to be here.

523
00:29:47,120 --> 00:29:48,360
Speaker 3: And celaire as always a.

524
00:29:48,280 --> 00:29:50,400
Speaker 2: Pleasure, wonderful. Thank you for having me.

525
00:29:50,840 --> 00:30:05,400
Speaker 3: As always, Thanks for coming on, Thanks for listening to

526
00:30:05,440 --> 00:30:08,520
Speaker 3: Trumponomics from Bloomberg. It was noted by me, Stephanie Flanders,

527
00:30:08,520 --> 00:30:11,200
Speaker 3: and I was joined by Anna Wong and Celia Mosen.

528
00:30:11,360 --> 00:30:15,080
Speaker 3: Trumponomics was produced by Sammersadi and Moses and with help

529
00:30:15,280 --> 00:30:18,520
Speaker 3: from Amy Keene and special thanks this week to Stacey

530
00:30:18,600 --> 00:30:22,560
Speaker 3: Wong and Dash Bennett. Sound designed by Blake Maples and

531
00:30:22,680 --> 00:30:26,959
Speaker 3: Kelly Gary and Sage Bowman is Bloomberg's head of podcasts.

532
00:30:27,400 --> 00:30:31,040
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533
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