1 00:00:02,720 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:09,000 --> 00:00:12,400 Speaker 2: Good afternoon, My colleagues and I remain squarely focused on 3 00:00:12,440 --> 00:00:16,080 Speaker 2: achieving our dual mandate goals of maximum employment and stable 4 00:00:16,120 --> 00:00:17,439 Speaker 2: prices for the band. 5 00:00:17,560 --> 00:00:21,120 Speaker 3: On Wednesday, the Federal Open Market Committee cut rates by 6 00:00:21,160 --> 00:00:22,680 Speaker 3: twenty five basis points. 7 00:00:23,000 --> 00:00:26,000 Speaker 2: Today, the Federal Open Market Committee decided to lower our 8 00:00:26,040 --> 00:00:29,040 Speaker 2: policy interest rate by quarter percentage point. 9 00:00:29,760 --> 00:00:32,440 Speaker 3: It was the scenario a lot of close watchers of 10 00:00:32,479 --> 00:00:36,800 Speaker 3: the Federal Reserve expected, including Anna Wong, the chief US 11 00:00:36,840 --> 00:00:39,080 Speaker 3: economist for Bloomberg Economics. 12 00:00:39,360 --> 00:00:43,000 Speaker 4: I think the takeaway is that Chair Powell really believed 13 00:00:43,120 --> 00:00:45,440 Speaker 4: that the economy needs another cut. 14 00:00:45,760 --> 00:00:48,640 Speaker 3: Anna says that even though people saw the cut coming, 15 00:00:49,240 --> 00:00:51,160 Speaker 3: it wasn't a foregone conclusion. 16 00:00:51,520 --> 00:00:55,080 Speaker 4: We knew going in that the FOMC is very divided. 17 00:00:55,320 --> 00:00:59,600 Speaker 4: We have twelve regional Fed presidents and more than half 18 00:00:59,640 --> 00:01:02,600 Speaker 4: of them think that holding the rates constant is the 19 00:01:02,600 --> 00:01:04,680 Speaker 4: wiser course of action. 20 00:01:05,280 --> 00:01:07,800 Speaker 1: And we see that in the dot plot. 21 00:01:07,840 --> 00:01:12,120 Speaker 4: With all these silent descents, we know that the majority 22 00:01:12,240 --> 00:01:17,039 Speaker 4: basically of the FOMC Committee would have preferred holding rates constant. 23 00:01:17,600 --> 00:01:21,800 Speaker 4: So the person that really changed this course of action 24 00:01:21,959 --> 00:01:25,600 Speaker 4: or pushed for this twenty five basis point cut is Powell. 25 00:01:27,240 --> 00:01:30,200 Speaker 3: This could be the last Federal Reserve meeting where Powell 26 00:01:30,240 --> 00:01:34,000 Speaker 3: will have that kind of sway. Here's President Trump hinting 27 00:01:34,120 --> 00:01:37,319 Speaker 3: at the next FED chair nominee in a press conference 28 00:01:37,360 --> 00:01:40,560 Speaker 3: from early December. I guess the potential FED chair is 29 00:01:40,600 --> 00:01:41,040 Speaker 3: here too. 30 00:01:41,200 --> 00:01:44,200 Speaker 4: I don't know we're allowed to say potential. 31 00:01:44,720 --> 00:01:47,800 Speaker 3: Trump has said that he and Treasury Secretary Scott Bessant 32 00:01:48,000 --> 00:01:51,280 Speaker 3: will name the next Federal Reserve Chair by early next year. 33 00:01:52,000 --> 00:01:54,440 Speaker 3: That person will replace Powell when his term is up 34 00:01:54,480 --> 00:01:58,160 Speaker 3: in May, and recently Kevin Hassett has emerged as the 35 00:01:58,200 --> 00:02:01,760 Speaker 3: front runner. He currently served as director on Trump's Council 36 00:02:01,840 --> 00:02:03,360 Speaker 3: of Economic Advisors. 37 00:02:03,800 --> 00:02:06,080 Speaker 1: Is a respected person that I can tell you. 38 00:02:06,520 --> 00:02:07,279 Speaker 4: Thank you, Kevin. 39 00:02:10,720 --> 00:02:12,880 Speaker 3: I'm Sarah Holder, and this is the big take from 40 00:02:12,880 --> 00:02:16,320 Speaker 3: Bloomberg News today on the show, what the Fed's latest 41 00:02:16,320 --> 00:02:19,760 Speaker 3: decision says about the state of the economy and the 42 00:02:19,800 --> 00:02:21,280 Speaker 3: state of the FED itself. 43 00:02:28,880 --> 00:02:31,600 Speaker 2: At today's meeting, the Committee decided to lower the target 44 00:02:31,680 --> 00:02:34,320 Speaker 2: range for the federal funds rate by a quarter percentage 45 00:02:34,360 --> 00:02:36,400 Speaker 2: point to three and a half to three and three 46 00:02:36,480 --> 00:02:39,880 Speaker 2: quarters percent. In the near term, Risks to inflation are 47 00:02:39,919 --> 00:02:43,360 Speaker 2: tilted to the upside, and risks, risks to employment to 48 00:02:43,440 --> 00:02:45,679 Speaker 2: the downside, a challenging situation. 49 00:02:46,360 --> 00:02:51,400 Speaker 3: And what will this cut mean for the economy, How 50 00:02:51,480 --> 00:02:55,000 Speaker 3: will it affect the labor market, affect inflation? What could 51 00:02:55,000 --> 00:02:55,639 Speaker 3: we see from here? 52 00:02:56,120 --> 00:03:00,320 Speaker 4: So the transmission of monetary policy is both short and 53 00:03:00,320 --> 00:03:03,640 Speaker 4: along at the same time, it is very fast in 54 00:03:03,680 --> 00:03:07,040 Speaker 4: supporting the economy in a couple of sectors. So in 55 00:03:07,280 --> 00:03:10,960 Speaker 4: industrial or production it takes only two to three months 56 00:03:11,000 --> 00:03:15,040 Speaker 4: before the rake cut will start causing some turnaround. Part 57 00:03:15,080 --> 00:03:18,359 Speaker 4: of the economy that reacts very quickly to rick cuts 58 00:03:18,520 --> 00:03:21,760 Speaker 4: is the housing market. And this fall so far the 59 00:03:21,800 --> 00:03:25,200 Speaker 4: housing market has been quite weak, and so that should 60 00:03:25,240 --> 00:03:29,000 Speaker 4: also start turning around within the next six months. So 61 00:03:29,080 --> 00:03:32,600 Speaker 4: I think a cut will only pour a little bit 62 00:03:32,639 --> 00:03:35,720 Speaker 4: of fuel onto the stock market. And we're going to 63 00:03:35,760 --> 00:03:40,800 Speaker 4: see easier financial conditions. And as of now, financial conditions 64 00:03:40,840 --> 00:03:44,760 Speaker 4: is already providing about zero point nine percentage point GDP 65 00:03:45,560 --> 00:03:49,560 Speaker 4: support in the next twelve months. Crucially, what the FEDS 66 00:03:49,640 --> 00:03:54,080 Speaker 4: signal for the path of rake cuts next year will 67 00:03:54,320 --> 00:03:57,640 Speaker 4: decide whether you know, the easy financial conditions will add 68 00:03:57,680 --> 00:04:00,360 Speaker 4: even more to the economy more than zero or point 69 00:04:00,400 --> 00:04:03,280 Speaker 4: nine percentage point as it shows now next year. 70 00:04:03,600 --> 00:04:06,520 Speaker 3: This twenty five basis point cut follows two other small 71 00:04:06,600 --> 00:04:09,480 Speaker 3: cuts at the last two FED meetings. What do these 72 00:04:09,640 --> 00:04:14,240 Speaker 3: incremental reductions say about the strategy the FED is currently 73 00:04:14,240 --> 00:04:16,039 Speaker 3: pursuing and might moving forward. 74 00:04:16,440 --> 00:04:19,520 Speaker 4: I think at each point of these twenty five basis 75 00:04:19,520 --> 00:04:21,839 Speaker 4: point cut the FED thought, Okay, I'm just going to 76 00:04:21,920 --> 00:04:24,960 Speaker 4: do one and then we'll wait a bit. But what 77 00:04:25,160 --> 00:04:28,240 Speaker 4: happened is that after each one of them, the incoming 78 00:04:28,320 --> 00:04:30,840 Speaker 4: data keep telling them that they need to do more, 79 00:04:31,320 --> 00:04:35,039 Speaker 4: and so even after this twenty five basis point cut, 80 00:04:35,240 --> 00:04:39,560 Speaker 4: we are still seventy five basis point to one hundred 81 00:04:39,640 --> 00:04:42,679 Speaker 4: basis point away from the neutral. I mean, it depends 82 00:04:42,680 --> 00:04:45,200 Speaker 4: on who you ask. The neutral could be two point 83 00:04:45,200 --> 00:04:49,080 Speaker 4: seventy five percent or three percent. So there's actually room 84 00:04:49,200 --> 00:04:52,960 Speaker 4: to cut for another three to four twenty five basis 85 00:04:52,960 --> 00:04:56,360 Speaker 4: point cuts. So it could be that the FED may 86 00:04:56,640 --> 00:04:58,720 Speaker 4: return to that pattern we have seen in the last 87 00:04:58,720 --> 00:05:01,800 Speaker 4: two meetings that even though projecting that they will only 88 00:05:01,839 --> 00:05:04,560 Speaker 4: do one or two more cut next year, they would 89 00:05:04,640 --> 00:05:07,480 Speaker 4: feel the need to do more as the data comes 90 00:05:07,480 --> 00:05:08,760 Speaker 4: in the next few months. 91 00:05:09,080 --> 00:05:13,400 Speaker 3: There was so much discussion during the government shutdown about 92 00:05:13,400 --> 00:05:17,120 Speaker 3: how the government data blackout would impact the fedibility to 93 00:05:17,200 --> 00:05:21,720 Speaker 3: gauge both inflation and employment. Did that ultimately impact their 94 00:05:21,720 --> 00:05:25,599 Speaker 3: ability to assess the health of the economy right now? 95 00:05:25,839 --> 00:05:28,880 Speaker 3: How much did that data disruption factor into what we're 96 00:05:28,880 --> 00:05:29,480 Speaker 3: seeing today? 97 00:05:29,839 --> 00:05:30,920 Speaker 1: It definitely did. 98 00:05:31,200 --> 00:05:35,000 Speaker 4: So. BLS just announced a series of revision to their 99 00:05:35,200 --> 00:05:38,240 Speaker 4: data release schedule, and it looks like that for a 100 00:05:38,320 --> 00:05:42,799 Speaker 4: whole slew of indicators there will never be an October number. 101 00:05:42,920 --> 00:05:43,360 Speaker 1: Wow. 102 00:05:43,480 --> 00:05:46,920 Speaker 4: So it's not just the unemployment rate, and not just 103 00:05:46,960 --> 00:05:52,320 Speaker 4: for the CPI but also explore import prices PPI, all 104 00:05:52,360 --> 00:05:55,480 Speaker 4: sorts of data. There's not going to be ever an 105 00:05:55,520 --> 00:05:56,560 Speaker 4: October number. 106 00:05:57,279 --> 00:06:01,159 Speaker 3: And how significant is that? How big of a black 107 00:06:01,200 --> 00:06:03,279 Speaker 3: hole of knowledge loss is that? 108 00:06:03,360 --> 00:06:06,440 Speaker 4: Well? So, for example, had the schedule been normal, had 109 00:06:06,480 --> 00:06:09,560 Speaker 4: there not been a government shutdown, then the Fed would 110 00:06:09,560 --> 00:06:15,080 Speaker 4: have had the November non farm payroll data before this 111 00:06:15,480 --> 00:06:20,080 Speaker 4: December meeting. They would have had a couple CPIPPI data 112 00:06:20,640 --> 00:06:24,200 Speaker 4: before this meeting, and they have none of that. So 113 00:06:24,320 --> 00:06:26,640 Speaker 4: we are going to be getting the non farm payrolls 114 00:06:26,720 --> 00:06:31,280 Speaker 4: data next week, which is abnormal, right, and it would 115 00:06:31,320 --> 00:06:35,520 Speaker 4: be a dual payroll data really, so we will get 116 00:06:35,560 --> 00:06:40,600 Speaker 4: both October and November numbers. They are going into this 117 00:06:40,680 --> 00:06:45,640 Speaker 4: December cut with more faith in Powell's read of the economy. 118 00:06:45,960 --> 00:06:49,360 Speaker 4: He really cares about the Beige Book. The Beige Book 119 00:06:49,440 --> 00:06:54,080 Speaker 4: traditionally has been a very good barometer of the labor market, 120 00:06:54,400 --> 00:06:58,120 Speaker 4: and the Beige Book has suggested that, in fact, maybe 121 00:06:58,160 --> 00:07:01,839 Speaker 4: about half of the districts are seeing flat to declining employment. 122 00:07:02,520 --> 00:07:06,400 Speaker 4: And that was also the same source that shaped his 123 00:07:06,560 --> 00:07:10,360 Speaker 4: view last fall in September of twenty twenty four, where 124 00:07:10,400 --> 00:07:13,440 Speaker 4: he pushed for a fifty basis point cut. So I 125 00:07:13,480 --> 00:07:16,600 Speaker 4: think that his takeaway of the economy is that the 126 00:07:16,680 --> 00:07:19,800 Speaker 4: labor market needs support from monetary policy. 127 00:07:20,160 --> 00:07:22,160 Speaker 3: So we know what data they didn't have, but what 128 00:07:22,320 --> 00:07:25,240 Speaker 3: data did they have and what was that telling them? 129 00:07:25,440 --> 00:07:29,480 Speaker 4: They rely more than usual on the ADP data, and 130 00:07:29,520 --> 00:07:32,520 Speaker 4: the ADP data had been very weak, and I think 131 00:07:32,600 --> 00:07:36,520 Speaker 4: the Fed staff has a very good grasp of what 132 00:07:36,720 --> 00:07:39,600 Speaker 4: the ADP data show and does not show, and where 133 00:07:39,640 --> 00:07:40,560 Speaker 4: the biases are. 134 00:07:41,680 --> 00:07:43,400 Speaker 1: But I think generally. 135 00:07:43,000 --> 00:07:47,640 Speaker 4: It is the ADP data is also consistent with all 136 00:07:47,680 --> 00:07:52,840 Speaker 4: these other private sector payrolls data, like you know, Gusto 137 00:07:53,040 --> 00:07:53,680 Speaker 4: into it. 138 00:07:55,120 --> 00:07:57,239 Speaker 1: Revealio. You know there's now. 139 00:07:57,120 --> 00:08:00,360 Speaker 4: A whole bunch of firms that provide s to mist 140 00:08:00,440 --> 00:08:04,680 Speaker 4: for NFP and all those said that negative job growth 141 00:08:04,800 --> 00:08:08,640 Speaker 4: happened in November, So that should be concerning, right, especially 142 00:08:08,680 --> 00:08:11,480 Speaker 4: if it agrees with the signal from the Beige Book, 143 00:08:11,520 --> 00:08:13,840 Speaker 4: which is also that half of the districts are seeing 144 00:08:13,840 --> 00:08:15,720 Speaker 4: flat to declining job growth. 145 00:08:16,000 --> 00:08:19,480 Speaker 3: We didn't see consensus today, right. We saw two officials 146 00:08:19,480 --> 00:08:22,560 Speaker 3: descent in favor of holding rates. We saw Stephen Myron 147 00:08:22,600 --> 00:08:25,720 Speaker 3: descent in favor of a fifty basis point cut. Is 148 00:08:25,760 --> 00:08:28,320 Speaker 3: this a departure from the norm we've seen under Powell? 149 00:08:28,760 --> 00:08:30,280 Speaker 3: Is it the end of an era? 150 00:08:30,800 --> 00:08:33,960 Speaker 4: It probably is an end of an era, because I 151 00:08:34,000 --> 00:08:37,800 Speaker 4: think every time a new FED chair enters, he needs 152 00:08:37,800 --> 00:08:42,480 Speaker 4: to build trust and credibility and a sense of camaraderie 153 00:08:42,520 --> 00:08:46,520 Speaker 4: with the rest of the fomc Ellen green Span had 154 00:08:46,640 --> 00:08:49,280 Speaker 4: a lot of soft power in the nineteen nineties, but 155 00:08:49,320 --> 00:08:53,520 Speaker 4: when you read the historical transcript you could see that 156 00:08:53,640 --> 00:08:58,480 Speaker 4: in fact, there were a lot of disagreement. Disagreement behind 157 00:08:58,520 --> 00:09:02,560 Speaker 4: closed doors are very common. Where it's differs is whether 158 00:09:02,840 --> 00:09:07,360 Speaker 4: these guys also openly dissent, because open dissension is a 159 00:09:07,480 --> 00:09:10,640 Speaker 4: sign that the FED chairman is not able to exercise 160 00:09:10,720 --> 00:09:11,480 Speaker 4: the soft power. 161 00:09:14,040 --> 00:09:16,440 Speaker 3: We talk about the other challenges facing the next FED 162 00:09:16,520 --> 00:09:19,680 Speaker 3: chair and how Kevin Hassett might approach them if chosen 163 00:09:19,720 --> 00:09:34,679 Speaker 3: to replace Powell. After the break, President Trump and Treasury 164 00:09:34,720 --> 00:09:37,480 Speaker 3: Secretary Scott Besson are expected to announce a pick for 165 00:09:37,520 --> 00:09:41,000 Speaker 3: the next FED chair by early next year. That person, 166 00:09:41,200 --> 00:09:44,439 Speaker 3: if confirmed by the Senate, will replaced Jerome Powell when 167 00:09:44,480 --> 00:09:48,240 Speaker 3: his term finishes in May. Kevin Hassett, one of Trump's 168 00:09:48,280 --> 00:09:52,080 Speaker 3: top economic advisors, has emerged as the front runner, and 169 00:09:52,120 --> 00:09:57,360 Speaker 3: Bloomberg Economics Chief US economist Anna Wong is very familiar 170 00:09:57,440 --> 00:10:02,240 Speaker 3: with Kevin Hassett's work, has it personally You both worked 171 00:10:02,240 --> 00:10:05,400 Speaker 3: on the Council of Economic Advisors during the first Trump term, 172 00:10:05,480 --> 00:10:07,319 Speaker 3: and you also spoke with him last month at the 173 00:10:07,360 --> 00:10:11,600 Speaker 3: Bloomberg Insights and Innovation Summit in Washington, d C. So 174 00:10:11,720 --> 00:10:16,240 Speaker 3: what should we know about Hassett's qualifications for the job? 175 00:10:16,280 --> 00:10:18,040 Speaker 3: What do you think Trump sees in him? 176 00:10:18,360 --> 00:10:21,880 Speaker 4: Well, in terms of his on paper qualification is very 177 00:10:21,880 --> 00:10:26,679 Speaker 4: similar to four other FEED chairs. So Jennett, Yellen, bernanke 178 00:10:27,000 --> 00:10:32,120 Speaker 4: Alan Greenspan were former CEA chairman, so that's quite similar. 179 00:10:32,120 --> 00:10:35,640 Speaker 4: And Arthur Burns also happened to be a CEA chairman. 180 00:10:36,120 --> 00:10:40,280 Speaker 4: But I think people's concern is that Kevin Hassett has 181 00:10:40,520 --> 00:10:43,319 Speaker 4: been an EC director role for most of this year, 182 00:10:43,800 --> 00:10:47,680 Speaker 4: and the job description of the NEC director is a 183 00:10:47,679 --> 00:10:50,440 Speaker 4: little bit like you're a salesman. You have to sell 184 00:10:50,760 --> 00:10:54,560 Speaker 4: the administration's policy. So in terms of how the world 185 00:10:55,280 --> 00:10:59,560 Speaker 4: understand him is they see it through his TV interviews 186 00:10:59,760 --> 00:11:04,760 Speaker 4: where he's basically selling the administration policies, and that's not 187 00:11:04,920 --> 00:11:07,600 Speaker 4: the job of the FED chairman. The FED chairman is 188 00:11:07,640 --> 00:11:11,320 Speaker 4: supposed to not sell anything, and you should come across 189 00:11:11,440 --> 00:11:16,000 Speaker 4: as a person who's a consensus builder and talk only 190 00:11:16,040 --> 00:11:21,800 Speaker 4: about data. The other side of Kevin, the off camera side, 191 00:11:21,960 --> 00:11:26,040 Speaker 4: is that he's actually very sensitive to data and he's 192 00:11:26,240 --> 00:11:30,680 Speaker 4: very good at tackling questions. When you work in the 193 00:11:30,720 --> 00:11:35,160 Speaker 4: policy world, you get these various stakeholders around the White 194 00:11:35,200 --> 00:11:39,320 Speaker 4: House and the Congress constantly bombarding you with economic questions 195 00:11:39,360 --> 00:11:41,320 Speaker 4: like what happened with this and that and that. So 196 00:11:41,440 --> 00:11:45,679 Speaker 4: he's actually very well rounded on all sorts of aspects 197 00:11:45,720 --> 00:11:49,480 Speaker 4: of the economy, and I think that gives him an 198 00:11:49,520 --> 00:11:54,840 Speaker 4: advantage in how to push the FED staff in incorporating 199 00:11:55,280 --> 00:12:01,800 Speaker 4: many things that typically Fed staff do not incorporate, for example, deregulation. Right, 200 00:12:01,880 --> 00:12:04,600 Speaker 4: how does the FED staff incorporate that I think barely, 201 00:12:04,679 --> 00:12:07,880 Speaker 4: because number one, they barely know what's going on with 202 00:12:08,000 --> 00:12:12,080 Speaker 4: deregulation policies, and number two, as a result, they don't 203 00:12:12,080 --> 00:12:13,959 Speaker 4: really have a strong view of how it should be 204 00:12:14,000 --> 00:12:17,000 Speaker 4: baked in. Kevin has a very strong view of where 205 00:12:17,040 --> 00:12:20,600 Speaker 4: that will enter. Basically, it should be lowering prices in it. 206 00:12:21,080 --> 00:12:21,800 Speaker 1: And second of. 207 00:12:21,840 --> 00:12:25,480 Speaker 4: All, a fiscal policy the impact of one big beautiful bill. 208 00:12:25,920 --> 00:12:28,040 Speaker 4: So at the end of the day, Kevin as a 209 00:12:28,080 --> 00:12:32,199 Speaker 4: tax economist, he is most passionate about text policy. 210 00:12:32,240 --> 00:12:33,640 Speaker 1: He helped design. 211 00:12:33,320 --> 00:12:36,319 Speaker 4: The text Cuts and Jobs Act, the One Big Beautiful Bill, 212 00:12:36,880 --> 00:12:41,559 Speaker 4: and the way that FED staff have traditionally incorporated the 213 00:12:41,600 --> 00:12:43,960 Speaker 4: economic impacts of these text policies. 214 00:12:44,000 --> 00:12:45,920 Speaker 1: They're very skeptical. 215 00:12:45,800 --> 00:12:50,240 Speaker 4: Of the growth enhancing impact of tax policy, and in 216 00:12:50,520 --> 00:12:54,800 Speaker 4: economist's term, you basically use a fiscal multiplier to decide 217 00:12:54,840 --> 00:12:58,520 Speaker 4: how much extra growth you can get from cutting corporate 218 00:12:58,559 --> 00:13:02,200 Speaker 4: tax right. I think my sense is that the FED 219 00:13:02,280 --> 00:13:06,880 Speaker 4: staff multiply estimate is at least maybe only one fourth 220 00:13:06,960 --> 00:13:08,600 Speaker 4: of what Kevin Hassett believes. 221 00:13:08,840 --> 00:13:10,640 Speaker 3: I want to talk about some of those TV appearances 222 00:13:10,679 --> 00:13:12,280 Speaker 3: because I think they're kind of telling. You know, I've 223 00:13:12,320 --> 00:13:15,960 Speaker 3: heard Hassett praise Powell. He was on CNBC earlier this 224 00:13:16,040 --> 00:13:17,959 Speaker 3: week and said that the FED needs to follow the 225 00:13:18,040 --> 00:13:22,280 Speaker 3: data and not prematurely promise future rate cuts. For example, 226 00:13:22,400 --> 00:13:25,280 Speaker 3: it's not exactly in line with Trump's thinking or how 227 00:13:25,320 --> 00:13:28,240 Speaker 3: Trump has been talking about the economy and the FED 228 00:13:28,320 --> 00:13:30,920 Speaker 3: and your own Powell and interest rates. So how are 229 00:13:30,960 --> 00:13:33,800 Speaker 3: you reading Hassett's public remarks right now? 230 00:13:34,240 --> 00:13:36,960 Speaker 4: Yeah, I mean, I think you noticed what I've noticed too, 231 00:13:37,000 --> 00:13:40,200 Speaker 4: which is that it seems like the way he talk 232 00:13:40,280 --> 00:13:43,440 Speaker 4: about FED rate cuts has shifted in the last five 233 00:13:43,520 --> 00:13:47,560 Speaker 4: days or so, and he's moving towards a more FED 234 00:13:47,760 --> 00:13:51,720 Speaker 4: chairman like way of talking about things to be cautious. 235 00:13:52,200 --> 00:13:54,560 Speaker 4: And I think you've heard in my interview with him 236 00:13:54,720 --> 00:13:57,720 Speaker 4: where he said I would not talk about whether inflation 237 00:13:57,800 --> 00:14:01,920 Speaker 4: is transitory. He also recently public remarks he declined to 238 00:14:01,960 --> 00:14:04,400 Speaker 4: say what FED funds rate should look like in six 239 00:14:04,480 --> 00:14:06,560 Speaker 4: months because he's not going to go out of a 240 00:14:06,640 --> 00:14:10,280 Speaker 4: limp to make a bold claim on what inflation is 241 00:14:10,320 --> 00:14:13,200 Speaker 4: and as not and what FED cuts would be. And 242 00:14:13,280 --> 00:14:17,360 Speaker 4: I thought that's a really new side of communication from him, 243 00:14:17,400 --> 00:14:20,520 Speaker 4: because we have not seen that prior to this week. 244 00:14:20,600 --> 00:14:25,200 Speaker 4: So I think he is transitioning to like conducting himself 245 00:14:25,280 --> 00:14:26,560 Speaker 4: more like a FED chairman. 246 00:14:26,840 --> 00:14:29,320 Speaker 3: Well, there have been concerns about the future of FED 247 00:14:29,400 --> 00:14:33,440 Speaker 3: independence under a Trump appointed FED chair What do we 248 00:14:33,480 --> 00:14:37,080 Speaker 3: know about how Hassett would approach or has approached the 249 00:14:37,160 --> 00:14:38,960 Speaker 3: question of FED independence. 250 00:14:39,320 --> 00:14:43,200 Speaker 4: So I think we should delineate the difference between FED 251 00:14:43,240 --> 00:14:49,280 Speaker 4: independence and FED accountability, because if you read and listen 252 00:14:49,360 --> 00:14:52,560 Speaker 4: to Kevin Hassett but also Steve Myron, they are both 253 00:14:52,600 --> 00:14:55,880 Speaker 4: strong believer of FED independence. They have supported it, they 254 00:14:55,880 --> 00:15:00,600 Speaker 4: have cited academic research of FED independence, but what efforts 255 00:15:00,640 --> 00:15:04,600 Speaker 4: in their view of FED independence that the FED also 256 00:15:04,720 --> 00:15:08,440 Speaker 4: needs to have accountability, and from their perspective, they think 257 00:15:08,480 --> 00:15:12,160 Speaker 4: that the FED really has dropped the ball on inflation 258 00:15:12,280 --> 00:15:15,680 Speaker 4: in the last four years. And also they perceived the 259 00:15:15,840 --> 00:15:20,920 Speaker 4: fifty bases point cut last fall as politically motivated, and 260 00:15:20,960 --> 00:15:25,160 Speaker 4: traditionally the FED institution, the staff is also left leaning, 261 00:15:25,600 --> 00:15:30,120 Speaker 4: so I think that fuels some suspicion from the administration 262 00:15:30,320 --> 00:15:34,760 Speaker 4: that this institution is full of deep state actors who's 263 00:15:34,800 --> 00:15:38,120 Speaker 4: trying to subvert what they're trying to do. So that's 264 00:15:38,160 --> 00:15:40,040 Speaker 4: why they feel like they need to send. 265 00:15:39,800 --> 00:15:41,160 Speaker 1: Their own person in there. 266 00:15:41,960 --> 00:15:45,280 Speaker 4: That type of thing in terms of risk for true 267 00:15:45,600 --> 00:15:50,840 Speaker 4: FED independence destruction where I would be worried if I 268 00:15:51,040 --> 00:15:57,000 Speaker 4: start seeing flimsy reasons for removing existing regional FED presidents, 269 00:15:57,520 --> 00:16:01,240 Speaker 4: because when we look at the current composition of it 270 00:16:01,360 --> 00:16:05,160 Speaker 4: is absolutely true that Trump has the regional Fed problem. 271 00:16:05,600 --> 00:16:10,200 Speaker 4: So of the two twelve regional Fed presidents, I counted 272 00:16:10,280 --> 00:16:14,600 Speaker 4: that nine of them are Hawks, and they are young Hawks, 273 00:16:15,040 --> 00:16:17,920 Speaker 4: they are going to be around until twenty thirties, and 274 00:16:17,960 --> 00:16:21,080 Speaker 4: the three Doves, two of them are retiring in twenty 275 00:16:21,120 --> 00:16:24,680 Speaker 4: twenty eight, so these are old Doves. I don't see 276 00:16:24,720 --> 00:16:29,640 Speaker 4: any legal means for removing current FED presidence unless they 277 00:16:29,680 --> 00:16:32,840 Speaker 4: pull a Bill Poulty on the regional Fed find some 278 00:16:32,960 --> 00:16:34,080 Speaker 4: trading scandals. 279 00:16:34,480 --> 00:16:36,520 Speaker 1: It's kind of very easy to. 280 00:16:36,680 --> 00:16:41,000 Speaker 4: Ding people for improper filing and that sort. 281 00:16:40,800 --> 00:16:42,640 Speaker 3: Of stuff, like they did with Lisa Cook. 282 00:16:43,000 --> 00:16:46,760 Speaker 4: With Lisa Cook, And while it's true that as the 283 00:16:46,880 --> 00:16:51,640 Speaker 4: chief regulator of banks and the financial market, you should 284 00:16:51,680 --> 00:16:56,280 Speaker 4: be squeaky clean, it's also it's very obvious what is 285 00:16:56,320 --> 00:17:01,680 Speaker 4: the motivation behind these investigations, And the optics also matter 286 00:17:01,760 --> 00:17:06,640 Speaker 4: for independence. So I think if Scott Besson pushes through 287 00:17:06,720 --> 00:17:08,960 Speaker 4: what he said he want to do, which is that 288 00:17:09,200 --> 00:17:13,800 Speaker 4: to from now on apply a three year residency requirement 289 00:17:13,960 --> 00:17:17,960 Speaker 4: for FED President and then they push it through Congress. 290 00:17:18,000 --> 00:17:21,280 Speaker 4: So that's completely legal. But if it start finding ways 291 00:17:21,320 --> 00:17:25,520 Speaker 4: to retroactively get rid of people, then I would be concerned. 292 00:17:25,920 --> 00:17:28,960 Speaker 3: Are there concerns about how the FED would operate between 293 00:17:29,000 --> 00:17:31,040 Speaker 3: the announcement of the next FED chair and the end 294 00:17:31,040 --> 00:17:34,120 Speaker 3: of Powell's term? Would there be confusion in the markets, 295 00:17:34,119 --> 00:17:36,880 Speaker 3: for example, about which leader to turn to for guidance? 296 00:17:36,920 --> 00:17:39,840 Speaker 3: And how could you know whoever is chosen as the 297 00:17:39,840 --> 00:17:42,280 Speaker 3: next FED chair navigate that or temper that. 298 00:17:42,800 --> 00:17:46,360 Speaker 4: So it depends, of course who the next FED chair is. Right. 299 00:17:46,560 --> 00:17:50,240 Speaker 4: So if Kevin has It is appointed to replace Adriana 300 00:17:50,320 --> 00:17:54,240 Speaker 4: Kugler's role, which is currently occupied by Steve Myron, he'll 301 00:17:54,280 --> 00:17:59,800 Speaker 4: be going in January or February, and Powell's term expart 302 00:18:00,080 --> 00:18:03,240 Speaker 4: in May, so there would be a couple months where 303 00:18:03,320 --> 00:18:06,399 Speaker 4: Powell would be a lame duck. So in that case, 304 00:18:06,840 --> 00:18:10,720 Speaker 4: whatever Powell give in terms of four guidance in each 305 00:18:10,760 --> 00:18:15,080 Speaker 4: of these FOMC meetings, financial markets would sort of discount 306 00:18:15,200 --> 00:18:18,760 Speaker 4: and rather that they would listen to Kevin has instead. 307 00:18:18,960 --> 00:18:22,359 Speaker 4: But I will also have to say that Kevin has 308 00:18:22,440 --> 00:18:27,160 Speaker 4: Its temperament is that he's very affable, and he actually 309 00:18:27,200 --> 00:18:31,880 Speaker 4: has a collegial relationship with Powell, and on top of that, 310 00:18:32,240 --> 00:18:38,200 Speaker 4: Kevin has it risked his own skin in preventing Powell 311 00:18:38,240 --> 00:18:42,280 Speaker 4: from being fired in twenty eighteen and twenty nineteen. I 312 00:18:42,320 --> 00:18:46,560 Speaker 4: think Kevin's personality and temperament would be that while he's 313 00:18:46,600 --> 00:18:49,679 Speaker 4: on the board and while Powell is the chairman, he 314 00:18:49,720 --> 00:18:53,080 Speaker 4: would not be like very combative, but he will be 315 00:18:53,280 --> 00:18:57,440 Speaker 4: vocal about his disagreement with Powell. 316 00:18:57,600 --> 00:19:00,920 Speaker 3: Well, so, again, looking ahead to the next chair's term, 317 00:19:01,040 --> 00:19:04,280 Speaker 3: Trump has talked about getting interest rates below two percent, 318 00:19:04,440 --> 00:19:08,640 Speaker 3: even against this backdrop of what Powell has termed stubborn inflation. 319 00:19:09,320 --> 00:19:12,800 Speaker 3: If the next FED chair were to aggressively cut rates 320 00:19:13,160 --> 00:19:15,840 Speaker 3: to get us there, what do your model say and 321 00:19:16,200 --> 00:19:18,280 Speaker 3: about what that might mean for the economy. 322 00:19:18,760 --> 00:19:22,879 Speaker 4: Yeah, so it would mean a temporary boom ahead of 323 00:19:22,920 --> 00:19:27,560 Speaker 4: the midterms and then perhaps even through some parts of 324 00:19:27,600 --> 00:19:32,239 Speaker 4: twenty twenty seven. This is assuming there's not this X 325 00:19:32,320 --> 00:19:35,520 Speaker 4: factor that somehow calms inflation down. 326 00:19:35,640 --> 00:19:37,119 Speaker 3: And what would that X factor be? 327 00:19:37,400 --> 00:19:38,120 Speaker 1: Productivity? 328 00:19:38,200 --> 00:19:41,960 Speaker 4: Okay, So Kevin has it truly believed that there exists 329 00:19:41,960 --> 00:19:45,199 Speaker 4: this X vector. He has said that he believes productivity 330 00:19:45,240 --> 00:19:49,399 Speaker 4: will be four percent next year, because if he is right, 331 00:19:49,640 --> 00:19:53,480 Speaker 4: then even with GDP growth at over three percent would 332 00:19:53,520 --> 00:19:57,680 Speaker 4: not be inflationary because of that productivity growth. But traditional 333 00:19:57,720 --> 00:20:03,040 Speaker 4: economic models not assume this productivity growth, will say that 334 00:20:03,440 --> 00:20:06,800 Speaker 4: inflation will go about three percent or even three point 335 00:20:06,840 --> 00:20:10,800 Speaker 4: five percent by twenty twenty seven because traditional models do 336 00:20:10,920 --> 00:20:15,080 Speaker 4: not assume that there's this X factor, and the model 337 00:20:15,119 --> 00:20:17,919 Speaker 4: would say that the FED in that case will have 338 00:20:18,000 --> 00:20:21,200 Speaker 4: to hike at that time in twenty twenty seven. Otherwise 339 00:20:21,240 --> 00:20:23,679 Speaker 4: it would just keep drifting twour four percent and then 340 00:20:23,720 --> 00:20:28,000 Speaker 4: there will be a bust right before the presidential election 341 00:20:28,040 --> 00:20:30,400 Speaker 4: in twenty twenty eight, basically a bust from the end 342 00:20:30,440 --> 00:20:33,040 Speaker 4: of twenty twenty seven through twenty twenty eight. 343 00:20:38,280 --> 00:20:41,080 Speaker 3: This is The Big Take from Bloomberg News. I'm Sarah Holder. 344 00:20:41,480 --> 00:20:44,119 Speaker 3: To hear Annawong's full interview with Kevin Hassett from the 345 00:20:44,160 --> 00:20:48,120 Speaker 3: Bloomberg Insights and Innovation Summit, go to Bloomberg dot com. 346 00:20:48,640 --> 00:20:50,920 Speaker 3: To get more from The Big Take and unlimited access 347 00:20:50,960 --> 00:20:54,400 Speaker 3: to all of Bloomberg dot Com. Subscribe today at Bloomberg 348 00:20:54,440 --> 00:20:57,880 Speaker 3: dot com slash podcast offer. If you liked this episode, 349 00:20:58,000 --> 00:21:00,439 Speaker 3: make sure to follow and review The Big Take wherever 350 00:21:00,480 --> 00:21:02,960 Speaker 3: you listen to podcasts. It helps people find the show, 351 00:21:03,560 --> 00:21:05,600 Speaker 3: Thanks for listening. We'll be back tomorrow.