1 00:00:02,480 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,280 --> 00:00:10,840 Speaker 2: President Trump is ramping up criticism of FED chair Jerome Pal, 3 00:00:10,920 --> 00:00:13,640 Speaker 2: so let's discuss now with Claudia Salm. She's new Century 4 00:00:13,680 --> 00:00:17,319 Speaker 2: Advisor's chief economists and former FED economists. Claudia, great to 5 00:00:17,360 --> 00:00:19,520 Speaker 2: have you with us. There was a note from wynthin 6 00:00:19,600 --> 00:00:22,439 Speaker 2: over at BBH this morning saying that the admission that 7 00:00:22,480 --> 00:00:25,480 Speaker 2: this is being studied at all should be taken very 8 00:00:25,520 --> 00:00:30,040 Speaker 2: seriously and very negatively. And Claudia, I'm curious, how seriously 9 00:00:30,080 --> 00:00:32,519 Speaker 2: are you taking the possibility that we do see Trump 10 00:00:32,720 --> 00:00:34,000 Speaker 2: try to remove your own Pal. 11 00:00:35,840 --> 00:00:38,080 Speaker 3: I take it very seriously, and I you know, this 12 00:00:38,159 --> 00:00:42,000 Speaker 3: administration has taken steps, whether it's with the tariffs or 13 00:00:42,040 --> 00:00:44,479 Speaker 3: with downsides in the government, that really were, you know, 14 00:00:44,560 --> 00:00:48,519 Speaker 3: beyond expectations. So I you know, the unthinkable is thinkable 15 00:00:48,560 --> 00:00:51,400 Speaker 3: with this administration. So it is a risk to take seriously. 16 00:00:51,440 --> 00:00:53,400 Speaker 3: But I do think when the administration sits down and 17 00:00:53,440 --> 00:00:56,640 Speaker 3: studies the options, they'll come to the right conclusion that 18 00:00:56,720 --> 00:00:59,440 Speaker 3: this really isn't the path they want to go down. 19 00:01:00,720 --> 00:01:00,960 Speaker 4: Now. 20 00:01:01,040 --> 00:01:03,360 Speaker 1: I also want to talk about the precedent here because 21 00:01:03,440 --> 00:01:06,520 Speaker 1: people often point to what had happened in the Kennedy 22 00:01:06,560 --> 00:01:09,960 Speaker 1: era in the Johnson era. In the Nixon era, people 23 00:01:09,959 --> 00:01:13,720 Speaker 1: often pointed Nixon burns. The difference now is the amount 24 00:01:13,800 --> 00:01:16,280 Speaker 1: of tools in the toolkit. I think that the FED 25 00:01:16,319 --> 00:01:21,600 Speaker 1: has brought out in terms of quantitative easing, emergency measures 26 00:01:21,680 --> 00:01:25,640 Speaker 1: during crises. The power of the FED has grown. So 27 00:01:25,880 --> 00:01:28,760 Speaker 1: what does this mean to have this kind of political 28 00:01:28,800 --> 00:01:31,880 Speaker 1: pressure on the FED in an era where the economy 29 00:01:31,920 --> 00:01:32,720 Speaker 1: is so fragile? 30 00:01:34,080 --> 00:01:36,640 Speaker 4: Right, So the FED needs to be independent. 31 00:01:36,720 --> 00:01:40,759 Speaker 3: But the FED absolutely must be accountable, and it is 32 00:01:41,200 --> 00:01:42,480 Speaker 3: Congress created the FED. 33 00:01:42,640 --> 00:01:44,560 Speaker 4: It has amended the Federal Reserve Act. 34 00:01:44,600 --> 00:01:47,600 Speaker 3: Over time, the FED has to report to the public, 35 00:01:47,640 --> 00:01:50,440 Speaker 3: report to Congress. And you know, there are times where 36 00:01:50,440 --> 00:01:53,520 Speaker 3: FED has used tools, such as in the Great Financial Crisis, 37 00:01:53,560 --> 00:01:56,640 Speaker 3: they did emergency lending and then after the fact Congress 38 00:01:56,640 --> 00:01:58,760 Speaker 3: said they amended the Federal Reserve Act with the DoD 39 00:01:58,800 --> 00:02:00,520 Speaker 3: Frank and said you know what to do that you're 40 00:02:00,520 --> 00:02:02,520 Speaker 3: going to need treasuries buy in. 41 00:02:02,880 --> 00:02:04,160 Speaker 4: And that happened during COVID. 42 00:02:04,200 --> 00:02:06,600 Speaker 3: So there are times where we watch the powers of 43 00:02:06,640 --> 00:02:10,359 Speaker 3: the FED and Congress, you know, put some controls on them. 44 00:02:10,600 --> 00:02:14,400 Speaker 3: But that operational independence, that ability to set interest rates 45 00:02:14,440 --> 00:02:17,760 Speaker 3: with monetary policy, not just in the US, but around 46 00:02:17,760 --> 00:02:21,000 Speaker 3: the world has been come to be understood as very 47 00:02:21,040 --> 00:02:23,480 Speaker 3: important to keeping inflation low. 48 00:02:24,040 --> 00:02:25,320 Speaker 4: And this is we're seeing it. 49 00:02:25,400 --> 00:02:28,040 Speaker 3: This is the moment why we need FED independence where 50 00:02:28,080 --> 00:02:32,080 Speaker 3: you have strong views kind of clashing between the President. 51 00:02:31,680 --> 00:02:34,320 Speaker 4: And the FED. It's not personal, it's just the experience 52 00:02:34,440 --> 00:02:35,400 Speaker 4: is we need the. 53 00:02:35,320 --> 00:02:37,720 Speaker 3: FED bill to make the decisions that they think are best, 54 00:02:38,080 --> 00:02:40,359 Speaker 3: and we can hold them accountable for that after the fact, 55 00:02:40,440 --> 00:02:40,880 Speaker 3: but like. 56 00:02:40,880 --> 00:02:42,600 Speaker 4: They need to be able to make those decisions. 57 00:02:42,880 --> 00:02:45,400 Speaker 2: It's a good reminder too that we all have bosses, 58 00:02:45,440 --> 00:02:48,720 Speaker 2: including the FED and Jerome Pal's case, it's Congress. But 59 00:02:49,160 --> 00:02:50,880 Speaker 2: I want to go back to what you were saying 60 00:02:50,919 --> 00:02:53,240 Speaker 2: in your first answer, that you think that they're going 61 00:02:53,280 --> 00:02:55,880 Speaker 2: to study the options the administration that is, and that 62 00:02:55,919 --> 00:02:58,520 Speaker 2: they'll arrive at the conclusion and won't go through with this. 63 00:02:58,600 --> 00:03:01,760 Speaker 2: And I'm curious to see the confidence when they look 64 00:03:01,800 --> 00:03:04,280 Speaker 2: at the options. What do you think that they'll see. 65 00:03:05,040 --> 00:03:07,480 Speaker 3: It's in the absolute best interest of the president, with 66 00:03:07,560 --> 00:03:11,600 Speaker 3: his economic agenda that he has set to give the 67 00:03:11,600 --> 00:03:14,959 Speaker 3: FED its face to make its policy decisions. One of 68 00:03:15,000 --> 00:03:17,120 Speaker 3: the things that you know the FED is they're uncertain 69 00:03:17,160 --> 00:03:20,120 Speaker 3: about what happens with inflation, particular becomes embedded. 70 00:03:20,400 --> 00:03:21,120 Speaker 4: So they are. 71 00:03:21,040 --> 00:03:23,480 Speaker 3: Really trying to you know, we're the inflation fighter. We're 72 00:03:23,520 --> 00:03:26,280 Speaker 3: going to be credible on this. We've seen market expectations. 73 00:03:26,320 --> 00:03:28,640 Speaker 3: They don't expect the tariffs maybe to lift inflation this 74 00:03:28,720 --> 00:03:31,720 Speaker 3: year but then come back down. That is exactly I mean, 75 00:03:31,760 --> 00:03:34,280 Speaker 3: that is the path that the President would want to see, 76 00:03:34,520 --> 00:03:36,680 Speaker 3: you know, with the tariffs, not to have it be 77 00:03:36,800 --> 00:03:37,640 Speaker 3: long term inflation. 78 00:03:38,080 --> 00:03:39,360 Speaker 4: So let the FED do their job. 79 00:03:39,480 --> 00:03:43,440 Speaker 3: If the President undercuts this FED, it will not just undercut, 80 00:03:43,600 --> 00:03:46,400 Speaker 3: you know, remove Jay Palette, undercuts any future FED chairs 81 00:03:46,400 --> 00:03:49,080 Speaker 3: that that Trump would put in place, and it really 82 00:03:49,120 --> 00:03:51,080 Speaker 3: could cause a lot of disruptions. 83 00:03:51,960 --> 00:03:53,640 Speaker 4: And if he removes pal he's not going to get 84 00:03:53,680 --> 00:03:55,000 Speaker 4: interest rates down anyways. 85 00:03:55,480 --> 00:03:59,400 Speaker 3: They're going to go because the inflation expectations would go 86 00:03:59,400 --> 00:04:02,440 Speaker 3: go bisarre. So I absolutely understand why the President is 87 00:04:02,440 --> 00:04:05,560 Speaker 3: critical of the Fed's stance right now, but this isn't 88 00:04:05,600 --> 00:04:08,960 Speaker 3: the way to do interact with the FED. 89 00:04:09,240 --> 00:04:11,120 Speaker 2: Well, Claudia, you touched on something that Chanel and I 90 00:04:11,160 --> 00:04:14,040 Speaker 2: were discussing earlier, that you think about Kevin worsh who 91 00:04:14,280 --> 00:04:18,039 Speaker 2: has been reported as in consideration. Other outlets have reported 92 00:04:18,080 --> 00:04:21,560 Speaker 2: that he too, has urged the President not to necessarily 93 00:04:21,800 --> 00:04:25,760 Speaker 2: end Jerome Pal's term early exactly for that reason that 94 00:04:25,880 --> 00:04:28,599 Speaker 2: if he was then made FED chair, that he would 95 00:04:28,600 --> 00:04:32,120 Speaker 2: be dealing with a loss of credibility at the institution itself. 96 00:04:33,520 --> 00:04:37,080 Speaker 3: Right, And we have to look back the credibility that 97 00:04:37,120 --> 00:04:40,120 Speaker 3: the FED gained in terms of being inflation fighting, much 98 00:04:40,160 --> 00:04:40,760 Speaker 3: of that was. 99 00:04:40,720 --> 00:04:42,920 Speaker 4: One during the Pole Vulgar FED and that. 100 00:04:43,000 --> 00:04:47,080 Speaker 3: Was a very severe recession, very high interest rates to 101 00:04:47,120 --> 00:04:50,800 Speaker 3: break the inflation mentality like, we do not want to 102 00:04:50,800 --> 00:04:52,680 Speaker 3: go back, No one wants to go back there. 103 00:04:53,040 --> 00:04:55,000 Speaker 4: So that, Yeah, the. 104 00:04:54,960 --> 00:04:57,480 Speaker 3: FED is an institution, It plays an important role. It 105 00:04:57,520 --> 00:04:59,840 Speaker 3: doesn't always get it right. And the president could be 106 00:05:00,240 --> 00:05:02,359 Speaker 3: and there is a case for preemptive interest rate cuts. 107 00:05:02,400 --> 00:05:04,560 Speaker 3: It's just that's not a case that he should be making. 108 00:05:04,920 --> 00:05:07,760 Speaker 3: And he's in certainly removing or even threatening to remove 109 00:05:07,760 --> 00:05:11,120 Speaker 3: the FED chair. That's just that's creating more uncertainty in 110 00:05:11,160 --> 00:05:13,000 Speaker 3: a world right now that frankly is dealing with a 111 00:05:13,040 --> 00:05:16,239 Speaker 3: lot of uncertainty in terms of the economy and financial market. 112 00:05:16,279 --> 00:05:19,000 Speaker 4: So this would be a great time to de escalate this. 113 00:05:19,279 --> 00:05:21,520 Speaker 1: Well, Claudie, I want to bring up something that was 114 00:05:21,520 --> 00:05:24,719 Speaker 1: brought up befrom Neil Datta of Renaissance Macro this morning. 115 00:05:24,800 --> 00:05:27,880 Speaker 1: This is exactly what he wrote that forget the legal 116 00:05:27,960 --> 00:05:32,200 Speaker 1: obstacles to fire Powell, getting rid of him in such 117 00:05:32,240 --> 00:05:35,560 Speaker 1: a dramatic fashion would upset the bond market. Risk premiums 118 00:05:35,560 --> 00:05:39,440 Speaker 1: would rise sharply as investors questioned the central banks independence, 119 00:05:39,720 --> 00:05:43,760 Speaker 1: and longer run interest rates would surge. That was from 120 00:05:43,839 --> 00:05:46,000 Speaker 1: run Maac this morning. But then you also have this 121 00:05:46,080 --> 00:05:48,280 Speaker 1: morning we were talking about a little ker Katie and 122 00:05:48,320 --> 00:05:50,480 Speaker 1: I were talking about it. You have the president this 123 00:05:50,520 --> 00:05:53,560 Speaker 1: morning not saying he wanted to fire the FED chair. 124 00:05:53,680 --> 00:05:56,120 Speaker 1: He said that he wanted him to lower interest rates. 125 00:05:56,360 --> 00:05:58,799 Speaker 1: You saw on the heels of that just the tenure 126 00:05:59,279 --> 00:06:02,440 Speaker 1: lose some of its selloff. Do you think this is 127 00:06:02,480 --> 00:06:07,960 Speaker 1: turning in to a negotiation tactic more than a reality. 128 00:06:09,440 --> 00:06:11,440 Speaker 4: It's it's really hard. It's hard to. 129 00:06:11,440 --> 00:06:15,320 Speaker 3: Judge, right, Like I don't under you know, know where 130 00:06:15,320 --> 00:06:16,680 Speaker 3: the President is going from this? 131 00:06:16,800 --> 00:06:17,160 Speaker 4: I did. 132 00:06:17,440 --> 00:06:20,239 Speaker 3: It's great to see this morning's message on true social 133 00:06:20,279 --> 00:06:22,400 Speaker 3: did not include a threat of termination. 134 00:06:23,240 --> 00:06:26,760 Speaker 4: It is also problematic. 135 00:06:26,080 --> 00:06:28,560 Speaker 3: To be having this if you call it a negotiation 136 00:06:29,520 --> 00:06:32,960 Speaker 3: in public, right because now it does so. 137 00:06:33,040 --> 00:06:35,680 Speaker 4: Suppose the Fed meets and they cut interest rates? Did 138 00:06:35,680 --> 00:06:35,920 Speaker 4: they do it? 139 00:06:35,960 --> 00:06:38,640 Speaker 3: Because the president told them to, right Like, this is 140 00:06:38,760 --> 00:06:40,840 Speaker 3: just not this is not a healthy. 141 00:06:41,600 --> 00:06:43,480 Speaker 4: Discussion to be having. I mean, I understand it. 142 00:06:43,520 --> 00:06:46,840 Speaker 3: Again, the president at many presidents is nowhere near a 143 00:06:47,040 --> 00:06:47,560 Speaker 3: unique in this. 144 00:06:47,680 --> 00:06:48,839 Speaker 4: Don't like what the FED does? 145 00:06:48,960 --> 00:06:50,560 Speaker 3: Right That's again, that's part of why we need the 146 00:06:50,560 --> 00:06:53,200 Speaker 3: independence of the FED is just having this debate in 147 00:06:53,240 --> 00:06:56,040 Speaker 3: public and putting this pressure on. It's one of those 148 00:06:56,120 --> 00:06:58,440 Speaker 3: be careful what you wish for, right Like, if the 149 00:06:58,480 --> 00:06:59,960 Speaker 3: FED caves, it would be really bad. 150 00:07:00,200 --> 00:07:02,160 Speaker 4: I don't expect the Fed decay on this, but it 151 00:07:02,160 --> 00:07:02,960 Speaker 4: would be really bad. 152 00:07:03,000 --> 00:07:06,719 Speaker 3: And it makes a very complicated policy decisions for the 153 00:07:06,760 --> 00:07:09,120 Speaker 3: FED this year even harder if they have it with 154 00:07:09,279 --> 00:07:12,679 Speaker 3: all of this political tension and these conversations going. 155 00:07:12,520 --> 00:07:14,320 Speaker 1: On To that end, also, how do you see the 156 00:07:14,320 --> 00:07:16,520 Speaker 1: reaction from the bond market, not just in the short 157 00:07:16,640 --> 00:07:18,680 Speaker 1: term but in longer term rates. You think about the 158 00:07:18,720 --> 00:07:21,920 Speaker 1: ten year yield flirting with four point four percent this morning, 159 00:07:22,160 --> 00:07:26,120 Speaker 1: now closer to four point three four percent. Is there 160 00:07:26,200 --> 00:07:30,480 Speaker 1: a risk that a deep recession would drive down those 161 00:07:30,560 --> 00:07:35,120 Speaker 1: longer term bond yields significantly, or that fiscal pressures of 162 00:07:35,160 --> 00:07:37,760 Speaker 1: the United States will supersede all of that, And you 163 00:07:37,880 --> 00:07:40,800 Speaker 1: actually see those longer term rates go higher. 164 00:07:42,600 --> 00:07:44,840 Speaker 3: So everything is on the table as part of the 165 00:07:44,840 --> 00:07:48,040 Speaker 3: problem right now, and there really is a lot of uncertainty. 166 00:07:48,360 --> 00:07:53,800 Speaker 3: We're doing major policy changes from trade to fiscal to immigration, 167 00:07:54,280 --> 00:07:55,840 Speaker 3: and then if you want to put you know, FED 168 00:07:55,880 --> 00:07:58,760 Speaker 3: independence on the table too. It's just a lot for 169 00:07:59,120 --> 00:08:01,000 Speaker 3: anybody who's trying to look out in the future, which 170 00:08:01,000 --> 00:08:03,000 Speaker 3: is exactly what financial markets are trying to do. 171 00:08:03,080 --> 00:08:05,200 Speaker 4: They're trying to look out in the future and price it. 172 00:08:05,720 --> 00:08:08,400 Speaker 3: And honestly, I think the one thing that we should 173 00:08:08,480 --> 00:08:10,800 Speaker 3: be very comfortable with is we're going to see a 174 00:08:10,800 --> 00:08:12,560 Speaker 3: lot of volatility. We're going to see a lot of 175 00:08:12,600 --> 00:08:18,040 Speaker 3: shifting narratives until that uncertainty is pulled out. And the 176 00:08:18,080 --> 00:08:21,320 Speaker 3: president again has a very unique position and that he 177 00:08:21,720 --> 00:08:23,920 Speaker 3: can pull some of that uncertainty out right now. 178 00:08:24,320 --> 00:08:26,920 Speaker 2: Yeah, definitely. I mean a lot of this uncertainty came 179 00:08:26,960 --> 00:08:30,160 Speaker 2: from his desk itself, and obviously, like you say, he 180 00:08:30,200 --> 00:08:32,320 Speaker 2: has the levers to pull to remove that uncertainty. But 181 00:08:32,520 --> 00:08:34,680 Speaker 2: I want to talk about the numbers that the FED 182 00:08:35,040 --> 00:08:37,839 Speaker 2: has in front of them. Politics aside. When Jerome pal 183 00:08:38,120 --> 00:08:40,880 Speaker 2: and his colleagues are sitting down to make policy, they 184 00:08:40,920 --> 00:08:43,360 Speaker 2: have of course inflation. They have what the labor market 185 00:08:43,400 --> 00:08:45,880 Speaker 2: is doing, and they have of course what we're seeing 186 00:08:45,920 --> 00:08:49,840 Speaker 2: in terms of break even inflation expectations. And the President 187 00:08:49,880 --> 00:08:52,560 Speaker 2: Trump in history social post this morning said that you 188 00:08:52,600 --> 00:08:55,800 Speaker 2: have energy costs way down, you have food costs way down. 189 00:08:56,040 --> 00:08:58,679 Speaker 2: You also have most other things trending down. And as 190 00:08:58,760 --> 00:09:03,720 Speaker 2: such he concludes, there's actually no inflation. What are you seeing, though, Claudia, 191 00:09:03,800 --> 00:09:06,000 Speaker 2: what is the actual read on inflation right now? When 192 00:09:06,040 --> 00:09:07,439 Speaker 2: you take a look at this data. 193 00:09:08,320 --> 00:09:11,400 Speaker 3: Well, are broad based measures of inflation, so not just 194 00:09:11,520 --> 00:09:15,320 Speaker 3: picking out particular series like energy. They show that inflation 195 00:09:15,440 --> 00:09:19,480 Speaker 3: continues to be elevated relative to the FEDS two percent target. 196 00:09:19,559 --> 00:09:22,920 Speaker 3: And it's been that way for you know, since twenty 197 00:09:23,040 --> 00:09:23,560 Speaker 3: twenty one. 198 00:09:24,200 --> 00:09:25,360 Speaker 4: We've been making progress. 199 00:09:25,679 --> 00:09:28,880 Speaker 3: And honestly, the conversation we would be having right now 200 00:09:28,960 --> 00:09:32,200 Speaker 3: is about the upcoming FED rate cut because of progress 201 00:09:32,240 --> 00:09:35,360 Speaker 3: on inflation and the good economy if it were not 202 00:09:35,679 --> 00:09:38,719 Speaker 3: for some very big changes that have been made in 203 00:09:38,800 --> 00:09:42,640 Speaker 3: economic policy going forward. Above all else the tariffs, which 204 00:09:42,760 --> 00:09:45,120 Speaker 3: just aren't in the data yet, right, and the Fed 205 00:09:45,240 --> 00:09:47,040 Speaker 3: has to think about that. I mean, the markets are 206 00:09:47,040 --> 00:09:49,360 Speaker 3: thinking about everybody's thinking about what's coming ahead. 207 00:09:49,600 --> 00:09:51,800 Speaker 4: So yes, it is good that we've made progress on inflation. 208 00:09:51,880 --> 00:09:54,960 Speaker 3: That is, that is amazing where labor market is great, 209 00:09:55,200 --> 00:09:58,400 Speaker 3: but that does not tell us necessarily where we are 210 00:09:58,440 --> 00:10:01,040 Speaker 3: going over the coming months. And the FED, with all 211 00:10:01,040 --> 00:10:04,559 Speaker 3: this uncertainty about the policy, is their weight and see 212 00:10:05,280 --> 00:10:08,319 Speaker 3: approach to this I think makes a lot a lot 213 00:10:08,360 --> 00:10:11,000 Speaker 3: of sense. And so we're gonna but they're gonna want 214 00:10:11,080 --> 00:10:12,920 Speaker 3: they need to see the data and above all else. 215 00:10:12,720 --> 00:10:15,120 Speaker 4: They need to see that the inflation stays under control. 216 00:10:15,440 --> 00:10:16,880 Speaker 1: Claudia, we got to leave it there. We thank you 217 00:10:16,920 --> 00:10:19,400 Speaker 1: so much for your time this morning. Claudiasam of New 218 00:10:19,480 --> 00:10:20,679 Speaker 1: Century Advisors