WEBVTT - Lael Brainard Talks Fed Independence

0:00:02.520 --> 0:00:08.640
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I'm joined now by

0:00:08.680 --> 0:00:11.840
<v Speaker 1>someone who intimately understands the FED was there for ten

0:00:11.920 --> 0:00:15.960
<v Speaker 1>years and most recently was the FED Vice chair under J. Powell,

0:00:15.960 --> 0:00:18.040
<v Speaker 1>who is still now the chair, and that's of course

0:00:18.160 --> 0:00:20.480
<v Speaker 1>Lale Brainerd. Lale, thank you so much for joining us

0:00:20.520 --> 0:00:24.680
<v Speaker 1>this morning. As we see this standoff between President Trump

0:00:25.280 --> 0:00:27.840
<v Speaker 1>and Governor Cook, we have yet to hear from the

0:00:27.880 --> 0:00:30.040
<v Speaker 1>FED itself. What kind of response do you think we

0:00:30.080 --> 0:00:31.280
<v Speaker 1>can expect from the institution.

0:00:32.080 --> 0:00:35.559
<v Speaker 2>Well, I think the Federal Reserve is an incredibly difficult

0:00:35.600 --> 0:00:38.199
<v Speaker 2>position here, but you have to remember this is not

0:00:38.840 --> 0:00:44.360
<v Speaker 2>about an individual governor. This is really an unprecedented attack

0:00:44.640 --> 0:00:48.560
<v Speaker 2>on the independence of the Federal Reserve as an institution.

0:00:49.159 --> 0:00:53.840
<v Speaker 2>There is nobody in the Federal Open Markets Committee, the

0:00:54.280 --> 0:00:58.840
<v Speaker 2>Monetary Policy Setting Committee that can't be thinking, well, what

0:00:59.160 --> 0:01:02.840
<v Speaker 2>does this mean for me? And so any member of

0:01:02.880 --> 0:01:06.560
<v Speaker 2>the board presumably is going to worry that they too

0:01:06.640 --> 0:01:10.679
<v Speaker 2>could be subject to this kind of political pressure and

0:01:10.760 --> 0:01:16.320
<v Speaker 2>that fundamentally undermines the institutional independence of the FED, which

0:01:16.440 --> 0:01:22.800
<v Speaker 2>means higher inflation, potentially less credibility, even higher long term

0:01:22.800 --> 0:01:24.680
<v Speaker 2>interest rates bad for the economy.

0:01:24.880 --> 0:01:27.960
<v Speaker 1>Do you think this can actually impact how members are

0:01:27.959 --> 0:01:29.480
<v Speaker 1>thinking about monetary policy.

0:01:30.080 --> 0:01:34.880
<v Speaker 2>Well, I just think the implication if any member of

0:01:34.959 --> 0:01:38.680
<v Speaker 2>that board could come under this kind of political pressure

0:01:38.720 --> 0:01:41.399
<v Speaker 2>from the White House, and of course we saw that

0:01:41.520 --> 0:01:45.480
<v Speaker 2>kind of pressure on the chair earlier this year. I

0:01:45.520 --> 0:01:50.880
<v Speaker 2>think that does really put a higher premium on whether

0:01:50.920 --> 0:01:53.080
<v Speaker 2>they're going to be willing to speak their minds to

0:01:53.440 --> 0:01:56.840
<v Speaker 2>sent on key votes if necessary. I think it really

0:01:56.920 --> 0:01:59.120
<v Speaker 2>does create unprecedented risks.

0:01:59.320 --> 0:02:03.640
<v Speaker 1>The letter talked about this mortgage allegation fraud in the

0:02:03.640 --> 0:02:07.280
<v Speaker 1>mortgage world for Governor Cook, what if she was charged

0:02:07.400 --> 0:02:08.200
<v Speaker 1>or convicted?

0:02:09.120 --> 0:02:12.520
<v Speaker 2>Well, I think what is important here is due process

0:02:12.760 --> 0:02:16.440
<v Speaker 2>and undertaking a real investigation and having the facts on

0:02:16.520 --> 0:02:23.280
<v Speaker 2>the table, and the ability for her to defend herself legally.

0:02:23.840 --> 0:02:27.720
<v Speaker 2>None of that has taken place here. The White House

0:02:27.760 --> 0:02:31.519
<v Speaker 2>has preempted the process, and so that is why it's

0:02:31.639 --> 0:02:36.399
<v Speaker 2>really unprecedented. It's very very threatening to the very independence

0:02:37.320 --> 0:02:40.880
<v Speaker 2>of the Federal Reserve, and it should cause concerns, I

0:02:40.919 --> 0:02:46.760
<v Speaker 2>think among investors and more broadly about that fundamental underpinning

0:02:46.840 --> 0:02:49.799
<v Speaker 2>of our strong economy and our strong financial markets.

0:02:49.880 --> 0:02:53.200
<v Speaker 1>Given this is just about one individual, does the Fed

0:02:53.400 --> 0:02:55.480
<v Speaker 1>come out and say something or do they need to

0:02:55.520 --> 0:02:57.959
<v Speaker 1>wait until that due process takes place.

0:02:58.480 --> 0:03:01.880
<v Speaker 2>So the Federal Reserve as an institution is all about

0:03:01.960 --> 0:03:06.239
<v Speaker 2>due process. And there have been individuals who have had

0:03:06.320 --> 0:03:11.919
<v Speaker 2>investigations previously. There's a good process for doing that. That's

0:03:11.960 --> 0:03:15.480
<v Speaker 2>not what's taking place here. This is really about trying

0:03:15.520 --> 0:03:20.520
<v Speaker 2>to overturn the majority of the Board of Governors long

0:03:20.600 --> 0:03:24.920
<v Speaker 2>before any of these governor's terms are up, by threatening

0:03:24.960 --> 0:03:31.240
<v Speaker 2>them with these kinds of investigations and firing without real

0:03:31.360 --> 0:03:36.520
<v Speaker 2>due process and cause. And again, the Federal reserves independence

0:03:36.560 --> 0:03:39.760
<v Speaker 2>really is at stake here, and that means that monetary

0:03:39.800 --> 0:03:45.920
<v Speaker 2>policy will increasingly be overshadowed by concerns that there's political interference,

0:03:46.040 --> 0:03:49.440
<v Speaker 2>whether or not that is actually the case if you

0:03:49.520 --> 0:03:53.080
<v Speaker 2>think about it. J Powell opened the door for an

0:03:53.120 --> 0:03:57.600
<v Speaker 2>interest rate cut in September very clearly that's exactly what

0:03:57.720 --> 0:04:01.800
<v Speaker 2>the president wants, so monetary policy, he's actually moving his way.

0:04:02.760 --> 0:04:07.360
<v Speaker 2>And yet this is a very very aggressive attack on

0:04:07.440 --> 0:04:12.040
<v Speaker 2>the Federal Reserve when monetary policy is doing exactly what

0:04:12.160 --> 0:04:13.280
<v Speaker 2>he's been calling for.

0:04:13.600 --> 0:04:15.920
<v Speaker 1>That speech, the FED chair gave a Jackson hold just

0:04:16.000 --> 0:04:19.200
<v Speaker 1>on Fridays, very different from how he sounded J Powell

0:04:19.240 --> 0:04:23.159
<v Speaker 1>four weeks ago. Do you think the speech was political.

0:04:23.160 --> 0:04:26.320
<v Speaker 2>Well, I think that the Chair was very careful in

0:04:26.440 --> 0:04:30.440
<v Speaker 2>laying out that the balance of risks had shifted. He

0:04:30.560 --> 0:04:35.120
<v Speaker 2>pointed specifically to the possibility that the labor market is

0:04:35.200 --> 0:04:40.880
<v Speaker 2>weakening faster than the members of the FMC had believed

0:04:41.000 --> 0:04:44.280
<v Speaker 2>in their last meeting because of the revisions to three

0:04:44.320 --> 0:04:48.000
<v Speaker 2>months worth of hiring data, and so he laid out

0:04:48.040 --> 0:04:51.120
<v Speaker 2>a very I think strong case based on data and

0:04:51.160 --> 0:04:54.599
<v Speaker 2>the facts, why they were now potentially going to be

0:04:54.640 --> 0:04:59.000
<v Speaker 2>more attentive to that labor market weakening while acknowledging that

0:04:59.040 --> 0:05:01.680
<v Speaker 2>inflation is still likely to go up because of the

0:05:01.800 --> 0:05:03.679
<v Speaker 2>very high tariffs that have been put in place.

0:05:04.320 --> 0:05:07.680
<v Speaker 1>Knowing the data and knowing all the personnel that are

0:05:07.680 --> 0:05:10.560
<v Speaker 1>going to get together at the next FED meeting September seventeenth,

0:05:10.600 --> 0:05:12.760
<v Speaker 1>do you expect them all to walk through that door

0:05:12.880 --> 0:05:15.240
<v Speaker 1>that the FED chair opened up for a cut.

0:05:15.640 --> 0:05:18.400
<v Speaker 2>Well, I don't know if all members of the FMC

0:05:18.640 --> 0:05:21.200
<v Speaker 2>will be in the same place, and of course what

0:05:21.240 --> 0:05:24.080
<v Speaker 2>we should hope for is a really good debate and

0:05:24.160 --> 0:05:28.240
<v Speaker 2>an airing of differing views. But I do think that

0:05:28.440 --> 0:05:33.120
<v Speaker 2>barring something really surprising in the upcoming employment print and

0:05:33.400 --> 0:05:38.560
<v Speaker 2>CPI print, it's more likely than not that they will

0:05:38.640 --> 0:05:41.599
<v Speaker 2>vote for a twenty five basis point reduction in the

0:05:41.600 --> 0:05:42.480
<v Speaker 2>federal funds rate.

0:05:42.600 --> 0:05:45.159
<v Speaker 1>Do you think there's a bias to the labor market

0:05:45.240 --> 0:05:46.240
<v Speaker 1>in this federal reserve?

0:05:47.160 --> 0:05:49.560
<v Speaker 2>So up until this point, I think what we've heard

0:05:49.680 --> 0:05:53.640
<v Speaker 2>is a lot of discussion about the potential risks to inflation.

0:05:53.760 --> 0:05:57.720
<v Speaker 2>Inflation is still high. It is between two and a

0:05:57.760 --> 0:06:00.880
<v Speaker 2>half and three percent, and while this time last year

0:06:00.880 --> 0:06:03.240
<v Speaker 2>it was going in the right direction moving down to

0:06:03.279 --> 0:06:07.000
<v Speaker 2>the two percent target, this year is actually moving up.

0:06:07.040 --> 0:06:09.560
<v Speaker 2>So we have heard a lot of attention to inflation,

0:06:10.520 --> 0:06:15.760
<v Speaker 2>appropriately so, but the chair acknowledged that they are balancing risks,

0:06:15.920 --> 0:06:20.400
<v Speaker 2>risks of higher inflation, risks of lower employment, and that

0:06:20.560 --> 0:06:23.960
<v Speaker 2>is exactly what you expect from tariffs, a stagflationary shock.

0:06:24.279 --> 0:06:26.160
<v Speaker 1>When he was talking about tariffs, he said that it's

0:06:26.160 --> 0:06:28.880
<v Speaker 1>not going to come all at once. The impact is

0:06:28.920 --> 0:06:32.080
<v Speaker 1>the fedcher basically signaling to the market and to us

0:06:32.160 --> 0:06:35.240
<v Speaker 1>to just look through any potential hot CPI prints that

0:06:35.279 --> 0:06:37.800
<v Speaker 1>come out between now in the next twelve months.

0:06:38.240 --> 0:06:44.000
<v Speaker 2>So my interpretation of that discussion is simply to acknowledge

0:06:44.040 --> 0:06:49.039
<v Speaker 2>that when the labor market starts to turn down, unemployment

0:06:49.120 --> 0:06:53.000
<v Speaker 2>often doesn't gently move up, and the Federal Reserve doesn't

0:06:53.000 --> 0:06:56.440
<v Speaker 2>have a lot of time to react. Unemployment often jumps higher.

0:06:57.000 --> 0:07:01.279
<v Speaker 2>Whereas because the tariffs have changed a number of times

0:07:01.360 --> 0:07:05.039
<v Speaker 2>and still do not seem to be settled. Because businesses

0:07:05.080 --> 0:07:08.039
<v Speaker 2>were so good at getting inventories in ahead of time,

0:07:08.520 --> 0:07:12.320
<v Speaker 2>because consumers did a lot of advanced purchases, those tariffs

0:07:12.360 --> 0:07:15.080
<v Speaker 2>are working their way into prices more slowly. So I

0:07:15.080 --> 0:07:19.120
<v Speaker 2>think it was just an acknowledgement of different potential timing

0:07:19.560 --> 0:07:21.640
<v Speaker 2>on the two legs of the dual mandate.

0:07:21.800 --> 0:07:24.240
<v Speaker 1>It felt like Chair Powell was coming around to how

0:07:24.320 --> 0:07:26.920
<v Speaker 1>Governor Waller thinks, or maybe how Governor Bowman thinks. And

0:07:26.960 --> 0:07:29.520
<v Speaker 1>I want to end on those two individuals their names

0:07:29.560 --> 0:07:32.240
<v Speaker 1>potentially to be the next FED chair, but their scenario.

0:07:32.360 --> 0:07:35.640
<v Speaker 1>People are talking about that all the presidents terms need

0:07:35.720 --> 0:07:39.320
<v Speaker 1>to be renewed in February. Would you see a situation

0:07:39.480 --> 0:07:43.040
<v Speaker 1>or risk at the FED Board, would next multiple presidents

0:07:43.080 --> 0:07:45.800
<v Speaker 1>at the bidding of the President of the United States.

0:07:46.360 --> 0:07:50.680
<v Speaker 2>Well, I think that is exactly the risk that we

0:07:50.880 --> 0:07:56.240
<v Speaker 2>are seeing play out right now. So by moving preemptively

0:07:56.400 --> 0:08:01.320
<v Speaker 2>to remove a governor from the Federal Reserve without going

0:08:01.360 --> 0:08:06.320
<v Speaker 2>through the process, without there being any clear evidence. The

0:08:06.360 --> 0:08:10.720
<v Speaker 2>President essentially is moving to shift the majority of the

0:08:10.720 --> 0:08:14.680
<v Speaker 2>Board of Governors well before what was contemplated in terms

0:08:14.840 --> 0:08:18.480
<v Speaker 2>of the institutional structure in their terms, and that opens

0:08:18.520 --> 0:08:22.400
<v Speaker 2>the door when renewals of all of the Reserve Bank

0:08:22.440 --> 0:08:27.560
<v Speaker 2>presents come up in February, to again take very unprecedented

0:08:27.720 --> 0:08:31.320
<v Speaker 2>actions and potentially not renew some of them in order

0:08:31.400 --> 0:08:36.520
<v Speaker 2>to shift the overall voting majority on the FMC. That

0:08:36.960 --> 0:08:41.080
<v Speaker 2>is an unprecedented attack on the independence of the Federal

0:08:41.080 --> 0:08:45.120
<v Speaker 2>Reserve and it should really concern us about their ability

0:08:45.160 --> 0:08:50.680
<v Speaker 2>to continue to be credible in fighting inflation and keeping

0:08:51.160 --> 0:08:53.440
<v Speaker 2>our economy on a strong course.

0:08:53.200 --> 0:08:56.280
<v Speaker 1>Which is quickly. You know, Governor Bowman and Waller, do

0:08:56.320 --> 0:08:57.920
<v Speaker 1>you think they would be up for that kind of

0:08:57.960 --> 0:08:59.040
<v Speaker 1>level of revamping.

0:08:59.800 --> 0:09:03.560
<v Speaker 2>This is really not about individual members of the Board

0:09:03.880 --> 0:09:08.760
<v Speaker 2>or the FLMC. This is really about whether political pressure

0:09:08.840 --> 0:09:12.760
<v Speaker 2>will continue to be exerted on all members of the

0:09:12.960 --> 0:09:16.200
<v Speaker 2>FLMC in a way that puts them in jeopardy and

0:09:16.360 --> 0:09:21.400
<v Speaker 2>potentially makes them less willing to share their views about

0:09:21.440 --> 0:09:25.320
<v Speaker 2>the economy and appropriate monetary policy with the public and

0:09:25.480 --> 0:09:30.040
<v Speaker 2>also to vote their mind on monetary policy decisions. That

0:09:30.200 --> 0:09:32.760
<v Speaker 2>is what is at stake here, and I think it's

0:09:33.040 --> 0:09:33.880
<v Speaker 2>very concerning