WEBVTT - The Iran War Is Complicating How the Fed Makes Rate Decisions 0:00:02.680 --> 0:00:07.200 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.920 --> 0:00:13.040 Good afternoon. My colleagues and I remain squarely focused on 0:00:13.119 --> 0:00:16.640 achieving our dual mandate goals of maximum employment and stable 0:00:16.680 --> 0:00:18.800 prices for the benefit of the American people. 0:00:19.520 --> 0:00:22.240 The FED Reserve announced this afternoon it would keep interest 0:00:22.320 --> 0:00:22.959 rates steady. 0:00:23.280 --> 0:00:26.880 Today, the FMC decided to leave our policy rate unchanged. 0:00:27.160 --> 0:00:30.120 That's in spite of spiking oil prices and new market 0:00:30.200 --> 0:00:33.520 uncertainty driven by the Iran war. FED chair Jerome Powell 0:00:33.560 --> 0:00:36.839 took the podium to explain the rationale behind today's decision. 0:00:37.120 --> 0:00:39.239 The implications of events in the Middle East for the 0:00:39.320 --> 0:00:42.920 US economy are uncertain. In the near term, higher energy 0:00:42.920 --> 0:00:46.240 prices will push up overall inflation, but it is too 0:00:46.280 --> 0:00:49.479 soon to know the scope and duration of the potential 0:00:49.479 --> 0:00:50.720 effects on the economy. 0:00:51.360 --> 0:00:54.360 Bloomberg Fed reporter Amera Amokway says that the FED is 0:00:54.440 --> 0:00:57.080 essentially in weight and see mode when it comes to 0:00:57.120 --> 0:01:00.000 the conflict and the impacts that could have on the economy. 0:01:00.320 --> 0:01:04.080 Obviously, energy, oil, those are all inputs that matter for 0:01:04.200 --> 0:01:08.199 production for service producing businesses, and so if you start 0:01:08.240 --> 0:01:12.200 to see inflationary pressures sort of broadened beyond the energy sector, 0:01:12.240 --> 0:01:15.080 itself into other parts of the economy that I think 0:01:15.120 --> 0:01:18.200 would be of concern to FED policy makers, But they 0:01:18.200 --> 0:01:20.679 will also then be watching the real side of the economy. 0:01:21.040 --> 0:01:24.080 Does the spike and oil prices then have negative implications 0:01:24.080 --> 0:01:27.000 for growth, which then trickles over to the labor market? 0:01:27.120 --> 0:01:28.880 Do we start to see job losses? Do we start 0:01:28.920 --> 0:01:30.720 to see consumers pull back? Do we start to see 0:01:30.760 --> 0:01:31.640 businesses pull back? 0:01:31.920 --> 0:01:34.720 If we start to answer yes to those questions, the 0:01:34.760 --> 0:01:38.360 Fed's dual mandate of keeping prices stable and promoting maximum 0:01:38.400 --> 0:01:41.720 employment gets a lot trickier the tools it has to 0:01:41.760 --> 0:01:45.199 address inflation, like raising interest rates could make the labor 0:01:45.240 --> 0:01:49.120 market worse, and lowering rates to address unemployment could lead 0:01:49.200 --> 0:01:53.520 to higher inflation. Warton Associate Professor Peter Conti Brown puts 0:01:53.520 --> 0:01:54.560 it more simply. 0:01:54.880 --> 0:01:57.800 In so many respects, this is the Fed's worst nightmare. 0:02:00.880 --> 0:02:02.680 I'm David Gera, and this is the big take from 0:02:02.680 --> 0:02:05.400 Bloomberg News today on the show, how the FED is 0:02:05.440 --> 0:02:08.480 thinking about the Iran War, why it held rate steady, 0:02:08.800 --> 0:02:11.320 and what could shift its calculus in the months ahead. 0:02:18.760 --> 0:02:20.960 The part of the Federal Reserve that sets interest rates 0:02:21.080 --> 0:02:24.760 is called the Federal Open Market Committee. Those policymakers have 0:02:24.840 --> 0:02:28.079 a tough job. Under normal economic conditions, they have to 0:02:28.120 --> 0:02:30.639 predict where they think the economy is going by looking 0:02:30.720 --> 0:02:33.640 largely at data the show where it's been. And in 0:02:33.639 --> 0:02:35.839 the last few weeks, with the start of the Iran War, 0:02:36.280 --> 0:02:39.960 predicting where the economy is heading has gotten much much harder. 0:02:40.600 --> 0:02:43.040 To understand how the FED is approaching this challenging time, 0:02:43.200 --> 0:02:46.480 I talked to Bloomberg Fed reporter Emera Amoquay and Wharton 0:02:46.520 --> 0:02:50.440 professor Peter Conti Brown, who's a FED historian. For starters, 0:02:50.520 --> 0:02:53.920 I asked Emera what factors the policymakers considered as they 0:02:53.960 --> 0:02:56.040 decided where interest rates should be right. 0:02:55.880 --> 0:03:00.920 Now, there was a pre Iran war perspective, and the 0:03:00.960 --> 0:03:04.720 situation has obviously shifted dramatically now that we have the 0:03:04.760 --> 0:03:08.399 conflict in Iran. So after the last meeting in January, 0:03:08.639 --> 0:03:11.320 you got the sense that FED officials broadly agreed that 0:03:11.400 --> 0:03:13.679 they had policy in a good place. They cut three 0:03:13.720 --> 0:03:16.640 times towards the end of twenty twenty five. The labor 0:03:16.680 --> 0:03:21.040 market appeared to be steadying after jitters earlier in twenty 0:03:21.080 --> 0:03:23.679 twenty five, and they didn't cut in January, and you 0:03:23.760 --> 0:03:27.400 heard Chair Jerome Poue and several other policymakers saying they 0:03:27.400 --> 0:03:30.480 thought policy wasn't a good place, and some of them 0:03:30.560 --> 0:03:34.120 were really expressing concerns about the fact that inflation remains 0:03:34.400 --> 0:03:36.320 above the fed's target, and that it has been above 0:03:36.360 --> 0:03:39.880 target for five years now. Then the US and Israel 0:03:39.960 --> 0:03:43.720 launched this war on Iran, and that has really kind 0:03:43.720 --> 0:03:46.920 of scrambled the outlook and raises a lot of questions 0:03:46.920 --> 0:03:49.840 about how the FED will proceed in months ahead if 0:03:50.200 --> 0:03:53.800 we start to see their policy goals promoting maximum employment 0:03:53.840 --> 0:03:57.080 and bringing inflation back down start to come into conflict 0:03:57.120 --> 0:04:01.040 because we have seen oil prices shoot sharply higher. That 0:04:01.080 --> 0:04:05.200 has potential implications for inflation. It also has potential implications 0:04:05.200 --> 0:04:08.040 for economic growth and the labor market. And so the 0:04:08.120 --> 0:04:10.960 question now for the FED is if this energy shock 0:04:11.000 --> 0:04:13.920 that we're seeing now persist, how might they approach that. 0:04:14.880 --> 0:04:17.840 Peter, the policymakers are looking at this famous dashboard. Look 0:04:17.880 --> 0:04:21.120 at all of these economic data points, and so many 0:04:21.160 --> 0:04:24.719 of them came before Israel in the US launched that war. 0:04:25.440 --> 0:04:28.080 How does that complicate what a marriage is talking about 0:04:28.120 --> 0:04:30.040 their ability to kind of figure out where the economy 0:04:30.080 --> 0:04:30.880 is and where it's. 0:04:30.760 --> 0:04:34.719 Going Should the Iran war be temporary, should the strait 0:04:34.760 --> 0:04:37.679 of horm Us and the rapid deterioration of vessel flow 0:04:37.720 --> 0:04:41.680 through that straight and be relatively short lived, then this 0:04:41.800 --> 0:04:45.960 presents a very challenging dynamic for the FED to navigate, 0:04:45.960 --> 0:04:48.600 but it knows how to do this. Should that be prolonged, 0:04:48.680 --> 0:04:53.120 it's not just very challenging. This becomes the impossibility theorem. 0:04:53.240 --> 0:04:54.280 This is stagflation. 0:04:54.480 --> 0:04:57.239 This is you don't know which lever to pull because 0:04:57.240 --> 0:05:00.200 you exacerbate either one of your two new endates. When 0:05:00.240 --> 0:05:04.880 you have all of the dashboard lights flashing rainbow colors 0:05:04.920 --> 0:05:08.039 because you don't know exactly where we will be four 0:05:08.080 --> 0:05:10.680 weeks from now, let alone four months from now, then 0:05:10.680 --> 0:05:16.000 this creates an unbelievably difficult trajectory. Add to that, what 0:05:16.040 --> 0:05:19.840 America's saying is that we have not reached disinflation to 0:05:19.920 --> 0:05:24.680 target right. So this level of uncertainty makes policy making 0:05:25.120 --> 0:05:29.520 in any given FMC meeting playing darts with a blindfold, 0:05:29.800 --> 0:05:33.039 the FED is going to be exceedingly unlikely to sprint. 0:05:32.760 --> 0:05:35.839 Into the breach to wave off a recession. 0:05:36.320 --> 0:05:40.159 If inflation is moving up even incrementally, if it's moving 0:05:40.240 --> 0:05:42.839 up quickly, then I think it's inconceivable for the FED 0:05:42.880 --> 0:05:46.480 to prioritize unemployment over an inflationary spiral. 0:05:46.800 --> 0:05:49.600 Peter, you're a FED historian, and I'm curious what analogs 0:05:49.600 --> 0:05:52.040 you're looking to at this moment. So there is all 0:05:52.040 --> 0:05:54.760 of this uncertainty over what the FED is doing right now, 0:05:54.839 --> 0:05:57.240 what it's going to be doing at subsequent meetings. Is 0:05:57.279 --> 0:05:59.720 there a parallel that you reach for to this. 0:05:59.640 --> 0:06:02.000 Moment, Yeah, there are too. There was the oil shock 0:06:02.040 --> 0:06:03.040 of nineteen seventy three. 0:06:03.520 --> 0:06:06.200 It's important to remember that the context there, So we 0:06:06.279 --> 0:06:08.800 had an oil embargo announced by OPEK led. 0:06:08.680 --> 0:06:09.560 By Saudi Arabia. 0:06:10.000 --> 0:06:12.479 Inflation was already about nine percent of the time, so 0:06:12.520 --> 0:06:14.880 it was a different inflationary environment than we have today. 0:06:15.400 --> 0:06:16.520 But that oil. 0:06:16.240 --> 0:06:21.680 Embargo had unbelievable effects, and so it exacerbated the inflationary context. Well, 0:06:22.000 --> 0:06:25.479 recessionary consequences were also ticking up. This leads into just 0:06:25.520 --> 0:06:31.680 an unbelievably bruising decade of FED policy wherein to finally 0:06:31.760 --> 0:06:35.440 slay the dragon of inflation, Paul Volker's FMC had to 0:06:35.440 --> 0:06:38.919 trigger a recession so profound it was getting close to 0:06:38.960 --> 0:06:42.039 Great Depression territory, and indeed, until the Great recession. It 0:06:42.080 --> 0:06:45.360 was the most acute recession that we had experienced since 0:06:45.400 --> 0:06:49.640 the nineteen thirties. So that's the bad historical analog. The 0:06:49.680 --> 0:06:52.240 better one would be the late forties and early fifties. 0:06:52.480 --> 0:06:55.640 This is the time when the FED separated itself from 0:06:55.760 --> 0:07:00.200 under the Treasury's domain to a shirt for itself, more 0:07:00.279 --> 0:07:03.839 independence and setting industrate trajectories at a time when inflation 0:07:04.000 --> 0:07:06.080 looked like it was going to have a post war 0:07:06.160 --> 0:07:08.680 pop that would be very hard to eradicate. 0:07:09.040 --> 0:07:10.000 But that never happened. 0:07:10.000 --> 0:07:12.400 It never took root, and as a result, we had 0:07:12.880 --> 0:07:16.520 just extraordinary economic growth with relatively mild inflation. So we 0:07:16.600 --> 0:07:19.320 want things to look like the fifties, We fear the 0:07:19.360 --> 0:07:20.840 things are looking like the seventies. 0:07:21.280 --> 0:07:23.880 Amara, As you listened to FED policymakers in the run 0:07:23.920 --> 0:07:26.920 up to this meeting, how much was that history coloring 0:07:26.960 --> 0:07:29.160 their sense of this moment. How evident was it that 0:07:29.160 --> 0:07:31.440 they were thinking back about those two instances that Peter 0:07:31.560 --> 0:07:32.040 just mentioned. 0:07:32.200 --> 0:07:35.680 So we didn't hear from many FED policy makers after 0:07:35.760 --> 0:07:38.040 the launch of the war. We heard from a few, 0:07:38.160 --> 0:07:41.560 like a handful, talking about sort of this textbook approach 0:07:42.120 --> 0:07:45.840 to oil shocks, to energy shocks, which would say that 0:07:46.280 --> 0:07:48.200 if the shock is a short term thing, the FED 0:07:48.240 --> 0:07:50.120 should look through it. In other words, the FED doesn't 0:07:50.160 --> 0:07:53.360 necessarily need to raise rates because the FED is thinking 0:07:53.360 --> 0:07:57.480 about policy on a medium to long term outlook, and 0:07:57.520 --> 0:08:00.720 so if something is going to be short lived, you 0:08:00.760 --> 0:08:03.280 don't want to overreact to that and set policy according 0:08:03.280 --> 0:08:03.560 to that. 0:08:03.680 --> 0:08:06.200 What does it mean for the FED to look through something? 0:08:06.400 --> 0:08:08.360 When we use the metaphor of looking through, and it 0:08:08.400 --> 0:08:10.360 is a metaphor you're saying because you're saying there's some 0:08:10.400 --> 0:08:11.880 sort of tumult in front of you that you can 0:08:11.920 --> 0:08:14.160 see the end of, you can see the other side of, 0:08:14.200 --> 0:08:16.360 and the other side looks more like where we were 0:08:16.400 --> 0:08:19.200 before the tunnel than it does in the tunnel. Because 0:08:19.200 --> 0:08:21.000 if the tumult is the new normal, then there's no 0:08:21.040 --> 0:08:22.880 looking through. You have to adjust to the new normal. 0:08:23.440 --> 0:08:25.400 And that's what the FED doesn't have the luxury of doing. 0:08:26.000 --> 0:08:28.360 Are we going to see as a result of whatever 0:08:28.480 --> 0:08:31.360 is happening in the Middle East today, a fundamental reordering 0:08:31.920 --> 0:08:37.040 of the way that we do geopolitics, energy policy, macroconomic 0:08:37.120 --> 0:08:39.199 growth alliances? And if the answer to that is yes, 0:08:39.240 --> 0:08:42.360 there's no looking through, the tumult is us and that's 0:08:42.400 --> 0:08:43.480 what the FED has to adapt to. 0:08:43.760 --> 0:08:46.840 Peter, I'm curious how the FED is trying to encourage 0:08:46.880 --> 0:08:49.280 stability in the bond market at this moment. Mean, there's 0:08:49.320 --> 0:08:51.400 been so much volatility as the result of this war 0:08:51.880 --> 0:08:55.160 getting underway. What are policymakers trying to do to kind 0:08:55.160 --> 0:08:56.720 of calm things down so much as they can. 0:08:57.320 --> 0:08:58.800 I think this is one of the reasons why this 0:08:58.840 --> 0:09:02.079 is kind of a Nimer scenario. The Fed's primary tools 0:09:02.120 --> 0:09:05.440 for calmon bond markets is to assure the markets of 0:09:05.480 --> 0:09:08.480 its medium and long term credibility that no matter what 0:09:08.520 --> 0:09:11.040 happens in the world, whether we have to look through 0:09:11.280 --> 0:09:15.360 these episodic supply shocks or whether we incorporate them into 0:09:15.800 --> 0:09:20.120 our diagnosis and prognosis, the FED will be grown ups 0:09:20.120 --> 0:09:21.920 in the room to do the right thing for the 0:09:21.920 --> 0:09:25.520 long term stability of the US dollar. And those are 0:09:25.600 --> 0:09:28.000 assurances that are very difficult to make when what we're 0:09:28.000 --> 0:09:30.240 trying to predict is whether this is going to be 0:09:30.320 --> 0:09:33.400 an inflationary environment, not just because of the Iron War, 0:09:33.480 --> 0:09:36.800 but because the deterioration of norms of FED independence, or 0:09:36.840 --> 0:09:40.600 this is going to be a recessionary environment. We haven't 0:09:40.640 --> 0:09:43.520 talked about the other elephant in the room, which is 0:09:43.679 --> 0:09:48.000 whether AI will be writing us the economy on a 0:09:48.080 --> 0:09:53.199 rocket toward greater productivity and rate compression, or the white 0:09:53.200 --> 0:09:56.400 collar recession that will send unemployment rates into double digits. 0:09:56.559 --> 0:09:59.000 And given that amount of uncertainty, the only thing that 0:09:59.000 --> 0:10:02.000 the FED can do reassure bond markets is to continue 0:10:02.040 --> 0:10:04.480 to say we don't know what the right policy is, 0:10:04.600 --> 0:10:06.280 except we do know that we will find it. 0:10:07.480 --> 0:10:10.080 Coming up the challenges facing the Federal Reserve as it 0:10:10.120 --> 0:10:12.120 tries to find the right policy in the face of 0:10:12.160 --> 0:10:15.839 attacks on its independence and dissent among policymakers, and the 0:10:15.920 --> 0:10:18.400 latest developments as Jerome Powell reaches the end of his 0:10:18.520 --> 0:10:21.240 term as chair in the midst of a DOJ investigation 0:10:21.559 --> 0:10:31.400 into him and the FED, Peter looking at the crucible 0:10:31.440 --> 0:10:35.440 of the FOMC and thinking about history, do moments like 0:10:35.520 --> 0:10:38.839 this tend to lead to more unanimity among policymakers or 0:10:38.920 --> 0:10:41.520 more division. We went through this period where it seemed 0:10:41.559 --> 0:10:44.120 like FED Chair Jerome Powell had a lot of success 0:10:44.120 --> 0:10:46.480 in getting members of that committee to come on board 0:10:46.559 --> 0:10:48.960 with what he hoped the committee would do. We've seen 0:10:48.960 --> 0:10:52.400 that eroad a bit in recent meetings. Is this historically 0:10:52.440 --> 0:10:55.040 a time when the FED is more unified, when there 0:10:55.080 --> 0:10:56.840 is a large geopolitical risk like this one. 0:10:57.360 --> 0:10:59.559 You know, in the cycles of history of division and 0:10:59.600 --> 0:11:04.200 union and consensus. On the political side, we have enough 0:11:04.360 --> 0:11:07.440 data points to really see cycles, but at the FED 0:11:07.440 --> 0:11:10.240 we don't, and the reason is because we simply don't 0:11:10.240 --> 0:11:14.920 have the tradition of a lot of dissensus at the FOMC, 0:11:15.080 --> 0:11:18.440 at least formally as tallied by votes. And in that sense, 0:11:18.480 --> 0:11:23.280 this is another factor that makes the current FOMC extraordinarily 0:11:23.280 --> 0:11:27.520 difficult to predict. And that's not because we have ten 0:11:27.640 --> 0:11:30.240 central bankers who see it one way and two who 0:11:30.240 --> 0:11:33.280 see it another. That's pretty consistent over time. It's that 0:11:33.360 --> 0:11:36.280 we have the famous double descents that we have not 0:11:36.360 --> 0:11:39.720 seen for many years. That means, for those who are 0:11:39.800 --> 0:11:41.920 kind of outside that FED speak universes, that we have 0:11:42.000 --> 0:11:44.199 the consensus view, that's the policy view that commands the 0:11:44.280 --> 0:11:46.320 majority of the FMC, and then we have dissents going 0:11:46.360 --> 0:11:50.439 in both other directions. So saying you're being too restrictive, 0:11:50.480 --> 0:11:52.880 say one group, and you're being too accommodative says another. 0:11:53.200 --> 0:11:54.839 And that's what we have right now, although not in 0:11:54.880 --> 0:11:57.199 the January meeting, But in the meetings prior we had 0:11:57.400 --> 0:12:00.800 double descents, and that makes it really hard to predict 0:12:00.800 --> 0:12:04.720 what the Iran policy will mean for the FMC. Unlike 0:12:04.720 --> 0:12:07.679 in a political context, for sometimes we have these external 0:12:07.720 --> 0:12:10.760 wars creating a rally around the flag moment, there's not 0:12:10.800 --> 0:12:13.360 that same ethos because the questions are fundamentally different. 0:12:14.240 --> 0:12:16.880 Amara. We started off with you talking about how much 0:12:16.920 --> 0:12:18.720 has changed here over these last few weeks, and I 0:12:18.720 --> 0:12:20.480 look at this note, a recent note from Deutsche Bank, 0:12:20.960 --> 0:12:23.240 and that economics team rights a question that was almost 0:12:23.280 --> 0:12:25.920 unthinkable two weeks ago is now being more heavily debated. 0:12:26.280 --> 0:12:29.560 Could the FED raise rates in twenty twenty six? You 0:12:29.600 --> 0:12:31.800 talked about how the economy has shifted, the forecast for 0:12:31.840 --> 0:12:34.360 the economy have changed. How about just in terms of 0:12:34.400 --> 0:12:37.360 what market participants are expecting the Fed to do in 0:12:37.600 --> 0:12:39.000 the week's end, the weeks and months ahead. 0:12:39.320 --> 0:12:43.000 I think people are not really expecting another cut under 0:12:43.080 --> 0:12:46.319 chair Pale, whose term ends in May. But I think 0:12:46.360 --> 0:12:48.480 it's interesting because even if you look at the minutes 0:12:48.480 --> 0:12:51.520 from the January meeting, there were some officials who were 0:12:51.520 --> 0:12:55.320 already talking about hikes then, who were saying, look, inflation 0:12:55.440 --> 0:12:58.240 has been too high for too long, and we actually 0:12:58.240 --> 0:13:01.480 need to adjust what we're saying about the situation to 0:13:01.679 --> 0:13:04.400 acknowledge the facts that moves in the future may need 0:13:04.440 --> 0:13:06.880 to be higher. And so for those as Peter was 0:13:06.880 --> 0:13:11.000 talking about, those policymakers who are more concerned about inflation, 0:13:11.320 --> 0:13:13.520 you could see a world where this Iran situation, if 0:13:13.520 --> 0:13:17.360 it continues, could only heighten their concerns and maybe make 0:13:17.400 --> 0:13:20.760 them have less of an appetite to respond to any 0:13:20.960 --> 0:13:23.520 downside that we see on the real side of the economy, 0:13:23.520 --> 0:13:25.959 you know, for economic growth, for the labor market, because 0:13:26.000 --> 0:13:29.280 there are new inflationary pressures. And so I think what 0:13:29.360 --> 0:13:32.120 markets and investors are going to be listening closely for 0:13:32.200 --> 0:13:35.119 in this meeting and in subsequent meetings if this situation continues, 0:13:35.480 --> 0:13:38.080 is how Chair Poal is sort of characterizing the vibe 0:13:38.080 --> 0:13:41.080 on the committee and how he's really thinking about balancing 0:13:41.520 --> 0:13:44.320 these two risks in the months ahead. And that matters 0:13:44.360 --> 0:13:47.800 also because as it stands now, Chairpow could perhaps still 0:13:47.800 --> 0:13:50.440 be on the board even past his chair term in May, 0:13:50.920 --> 0:13:53.400 and he could still be chairing the FOMC past his 0:13:53.520 --> 0:13:55.760 chair term in May, and so I think people are 0:13:55.760 --> 0:13:58.160 still going to be looking for some signal from Chair 0:13:58.200 --> 0:14:01.120 pow in these final meetings under his chair term. 0:14:01.720 --> 0:14:04.920 Right, So, Peter Jerome Powell's tenure as FED share is 0:14:04.960 --> 0:14:07.880 supposed to end this spring, but he told reporters today 0:14:07.880 --> 0:14:10.360 that if his successor is not confirmed by the end 0:14:10.400 --> 0:14:13.240 of his term, he would serve as Chair pro tem 0:14:13.520 --> 0:14:16.480 until then. Howell also told reporters he wouldn't leave the 0:14:16.520 --> 0:14:19.160 FED Board while a Department of Justice investigation into him 0:14:19.360 --> 0:14:22.000 and the Federal Reserve is ongoing, and all of this 0:14:22.120 --> 0:14:25.640 relates to a renovation project of the Federserve's headquarters and 0:14:25.720 --> 0:14:29.360 testimony that j. Powell gave about that renovation. A few 0:14:29.400 --> 0:14:31.600 days ago, a judge blocked subpoenas that were a part 0:14:31.600 --> 0:14:34.280 of that investigation, and the DOJ has vowed to appeal that. 0:14:35.000 --> 0:14:37.640 How could all of this that legal fight influence the 0:14:37.680 --> 0:14:40.600 way the FED is handling decisions going forward and how 0:14:40.600 --> 0:14:43.240 the confirmation process for Powells successor plays out. 0:14:43.480 --> 0:14:46.960 I think the announcement that the Department of Justice is 0:14:46.960 --> 0:14:50.800 going to appeal the legal decision from the district court 0:14:51.800 --> 0:14:54.680 increased my priors from I think that there was a 0:14:54.680 --> 0:14:58.160 substantial minority probability that Share Powell would continue on as 0:14:58.240 --> 0:15:02.240 governor to now think that is likelier than not that 0:15:02.320 --> 0:15:06.480 Chair Palell is not going anywhere. And because Tom Tillis 0:15:06.520 --> 0:15:10.280 Senator from North Carolina has stayed resolute in his determination 0:15:10.360 --> 0:15:12.840 that so long as criminal proceedings are open against j Pal, 0:15:13.200 --> 0:15:16.000 there will be no confirmation hearing for his successor. But 0:15:16.080 --> 0:15:21.360 we also heard something that was from the lawyers representing 0:15:21.480 --> 0:15:23.640 in ja Palell which they told the Department of Justice 0:15:23.680 --> 0:15:26.760 that so long as this investigation is pending, jay Pal's 0:15:26.800 --> 0:15:30.040 not going anywhere, he will be staying at the FED. 0:15:30.080 --> 0:15:32.000 And as now, putting on my legal hat, I would 0:15:32.080 --> 0:15:34.560 say that is if I were asked for legal advice 0:15:34.720 --> 0:15:36.920 from the Palateam, that's exactly what I would tell them. 0:15:36.960 --> 0:15:39.000 You go nowhere, you say exactly where you are. 0:15:39.120 --> 0:15:41.920 You put yourself in an expanded legal and criminal peril 0:15:41.920 --> 0:15:44.040 should you leave. And so you stay where you are, 0:15:44.120 --> 0:15:46.280 You continue to be represented by the fed's lawyers, you 0:15:46.320 --> 0:15:48.920 continue to exercise that political coalition that's going to be 0:15:48.920 --> 0:15:52.520 plugged into the FED. And if that's true, that scrambles 0:15:52.560 --> 0:15:55.200 the governance story by a lot, and that means not 0:15:55.240 --> 0:15:57.440 only are we likely to have ja Pal's stag in place, 0:15:58.280 --> 0:15:59.800 we are also likely for the first time in the 0:15:59.800 --> 0:16:04.120 Fed's history to have you know, an Avignon pope, Two 0:16:04.200 --> 0:16:07.320 popes at the FED, two chairs, meaning that as soon 0:16:07.320 --> 0:16:09.600 as his term is up as FED Chair, it is 0:16:09.680 --> 0:16:11.960 likely to be the case that Vice Chair Jefferson will 0:16:12.000 --> 0:16:12.600 take over. 0:16:12.920 --> 0:16:14.600 For those board duties. 0:16:15.120 --> 0:16:19.520 But the FOMC, which elects its chair on an annual basis, 0:16:20.080 --> 0:16:24.080 will keep Powell in place until his successor is named. Indeed, 0:16:24.120 --> 0:16:26.080 that is what they announced in January when they held 0:16:26.120 --> 0:16:28.320 that election. And so we will have a FED Chair 0:16:29.120 --> 0:16:31.600 j Powell have the FOC, and we will have a 0:16:31.640 --> 0:16:34.920 FED Chair Philip Jefferson at the board, and we will 0:16:34.920 --> 0:16:36.920 have a raging president who doesn't like either of them 0:16:36.920 --> 0:16:38.200 and wants to do something. 0:16:38.240 --> 0:16:39.080 A third thing, and. 0:16:39.000 --> 0:16:41.920 My only advice to FED watchers everywhere is grab your 0:16:41.960 --> 0:16:45.160 tissues and grab your bucket of popcorn, because this tragic 0:16:45.160 --> 0:16:46.920 comedy is just you know, beginning. 0:16:51.840 --> 0:16:54.080 This is the Big Take from Bloomberg News. I'm David 0:16:54.120 --> 0:16:56.520 gurat To get more from the Big Take and unlimited 0:16:56.560 --> 0:16:59.320 access to all of Bloomberg dot Com, subscribe today at 0:16:59.360 --> 0:17:02.800 Bloomberg dot dot com slash podcast offer. If you'd liked 0:17:02.800 --> 0:17:05.240 this episode, make sure to follow and review The Big Take. 0:17:05.280 --> 0:17:08.000 Wherever you listen to podcasts, it helps people find the show. 0:17:08.440 --> 0:17:10.280 Thanks for listening. We'll be back tomorrow.