March 14, 2024 • 20 mins
Federal Reserve Chair Jerome Powell is trying to navigate a tricky economy – stubborn inflation and persistent fears of a recession. Now, two men hoping for a second term in the White House are drawing the central bank into the political fray.
“We can expect that things are going to get a little spicy,” Bloomberg’s Kate Davidson, who covers the Fed, joins the Big Take DC podcast to talk about the battle to maintain the central bank’s independence in the glare of 2024.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio News.
Speaker 2 (00:08):
Hey, it's Sarah. The United States, as you probably know,
is in the middle of a complicated economic moment. The
Federal Reserve has been working to bring down inflation without
triggering a recession, and that challenge is tricky in an
election year. So today I'm turning the mic over to
my colleague Saliah Mosen, who has covered the Fed for years.
Here's Seleia.
Speaker 3 (00:29):
Last week, the halls of Congress were a buzz.
Speaker 4 (00:35):
Committee will come to order.
Speaker 3 (00:36):
It was a big day for the House Committee on
Financial Services.
Speaker 4 (00:39):
The Federal Reserves semi annual Monetary Policy Report, an inventive
title we use semi annually here on the.
Speaker 3 (00:47):
Committee, in case you missed it. That is a little
bit of Federal Reserve style of humor from Committee Chairman
Patrick McHenry.
Speaker 4 (00:54):
I see Chairman, pal smile. It's just three hours.
Speaker 3 (00:57):
In the hot seat. For those three hours is Room Powell,
who doesn't joke around much, and for good reason. He's
the chair of the Federal Reserve. His decisions about interest rates,
move markets and the entire economy. Not that you'll hear
that from him in start contrast to almost everyone else
in Washington. Powell shies away from dramatics. He's intentionally kind
(01:20):
of boring and tends to downplay the power of the
fed's actions. Listen to his response to Gregory Meeks, a
New York Democrat.
Speaker 2 (01:28):
Inface it is also now coming down faster than any
place else on the planet, just about Is that not correct?
Speaker 1 (01:36):
I think that's right.
Speaker 3 (01:37):
Yeah, Powell's response is pretty bland, But bland is kind
of the point for the FED chair. When Powell speaks,
markets move, so he doesn't want to be dramatic or
declare mission accomplished.
Speaker 1 (01:50):
We wouldn't be, you know, declaring victory.
Speaker 3 (01:52):
Like that, or do anything that people might interpret as
a hint to what FED policy will look like.
Speaker 1 (01:57):
In the future.
Speaker 3 (01:59):
He's special, doesn't want to say anything that might be
seen as political, and that puts him in a really
tough spot right now, because the US economy is at
the center of the twenty twenty four election and the
decisions that Powell and the FED may have a powerful
effect on the economy that each candidate hopes will hand
him the White House. Today on the show, I speak
(02:22):
with Bloomberg Fed editor Kate Davidson about the Central Banks
politics problem. And the growing pressure on J. Powell.
Speaker 1 (02:29):
The closer we get to the election in November, we
can expect that things are going to get a little spicy.
Speaker 3 (02:35):
Can the FED battle inflation in the glare of electioneer
politics all while maintaining its independence from Bloomberg's Washington bureau.
This is the Big Take DC Podcast.
Speaker 1 (02:46):
I'm Salaiah Mosen.
Speaker 3 (02:55):
I've covered economic policy for years from the White House, angle,
the Treasury Department, Congress, the FED. I even have a
book coming out all about the dollar, so I can
get pretty wonky. But someone who never gets bored talking
policy with me is my colleague Kate Davidson.
Speaker 1 (03:10):
I lead our Federal Reserve coverage, and honestly, when I
first came to Washington and I got into covering the
banking industry and regulation after the two thousand and eight
financial crisis, I kind of found myself thinking, like, how
did I stumble into this? How do I explain this
to people? It feels so removed from my everyday life
and what seems important to me? But I quickly realized
(03:32):
it is so important.
Speaker 3 (03:33):
Kate was my arch rival at the Wall Street Journal
and political for years. We were always competing for scoops,
but now we're scooping for the same team, and there's
nobody better to break down the job of the Federal Reserve.
Speaker 1 (03:45):
So the FED is charged with basically managing the economy.
And the primary way that the FED affects our lives
is by influencing the cost to borrow money.
Speaker 3 (03:56):
The cost to borrow money as an interest rates. When
the FED wants people to spend more, you know, juice
the economy, it lowers interest rates, so it's cheaper to borrow.
When it's cheaper to borrow, people and businesses spend more,
they buy more, invest more. That grows the economy. When
the FED raises interest rates, people borrow less, they spend less,
(04:17):
and the economy slows down.
Speaker 1 (04:19):
So credit card rates, auto loans, mortgages, all of these
things are influenced by the rate that the FED sets.
Speaker 3 (04:28):
Now, one thing that you said was a little bit confusing.
Why would the Fed want to slow down a consumer
driven economy.
Speaker 1 (04:34):
Yeah, well, it all goes back to inflation.
Speaker 3 (04:37):
Inflation meaning price is rising. The FED likes to see
prices rise at a predictable rate a little bit every year.
It means the economy is healthy. But over the last
few years, prices have risen a lot. When inflation gets
too high, it's bad for the economy and for people.
Higher prices mean each dollar you earn buys you less.
(04:59):
That's why your grosser bill has been so much higher recently.
To bring prices down, meaning slow inflation, the central Bank's
main tool interest.
Speaker 1 (05:07):
Rates, and so really the primary tool the FED has
with interest rates is to try to what they say
is cool demand, is to slow down spending. That's really
the whole game for the Fed. They have to try
to discourage people from spending money.
Speaker 3 (05:22):
Between March of twenty twenty two and July of twenty
twenty three, the FED raised interest rates eleven times. That
brought down prices, but it also slowed the economy. And
many economists saw this and said the Fed is going
to trigger a recession. But that recession never came. And
now those same economists are saying that j. Powell and
(05:42):
the Fed have pulled off a so called soft.
Speaker 1 (05:44):
Landing, trying to make sure inflation comes all the way
back down to a level they think is appropriate for
healthy economy without causing a big downturn in the labor market,
without having tons of layoffs.
Speaker 3 (05:56):
Not everyone's convinced the economy is working for them. So far,
unemployment in the US is near record lows and prices
have come down a lot. A soft landing would be
a big win for Powell.
Speaker 1 (06:09):
He's an interesting guide. He's not an economist. You know,
a lot of FED leaders typically have been these PhD economists,
and J Powell as a lawyer, he kind of stumbled
into this role. As a FED governor. He had played
a really pivotal role during the debt sealing crisis in
twenty thirteen. He was seen as someone who could reach
out to Republicans on Capitol Hill and explain to them
(06:32):
why it would be a terrible thing for financial markets
if we were to breach the debt ceiling.
Speaker 3 (06:36):
Powell has been working at the Federal Reserve for years.
He was nominated as chair in twenty seventeen by President
Trump and then confirmed by the Senate, and President Biden
kept him in that role when he took office. He
seems to be really well liked by a lot of people.
Speaker 1 (06:52):
I think he's pretty even keeled, and I think that
people really appreciate that he's pretty plain spoken because he's
not an economist, so he tries to explain things very simply,
and he I think realizes that he's speaking to the
American people. He's speaking of financial markets, of course, and
that's really important, but he doesn't lean into these very
complicated economic ideas.
Speaker 3 (07:13):
Doesn't he play the electric guitar?
Speaker 1 (07:16):
Yeah, he plays the guitar. He's a big grateful Dead fan.
He was spotted at a concert in the Washington area
last summer at a Dead and Company show. He was
asked about it when he was testifying on Capitol Hill.
Speaker 2 (07:28):
Oh, it was terrific.
Speaker 1 (07:28):
What can I say? So it was great. I've been
a grateful Dead fan for fifty years.
Speaker 3 (07:35):
Is he in touch with the average American? Because I
know he's a member of a couple of country clubs
or exclusive clubs that have like twenty fifty thousand year entries.
Speaker 1 (07:45):
And that's sort of the knock on him, right, He
is a Beltway inside. Or he might say he went
to Georgetown Prep in Washington, which is where Neil Gorsich
and Brett Kavanaugh also went to school. I mean he
worked at the Carlisle Group. He certainly is very wealthy
and wealthier than most Americans, and so I think that
I don't know that you could say he's exactly relatable,
(08:08):
but he tries.
Speaker 3 (08:10):
So Powell is dealing with the economy, but the economy
isn't Powell's only consideration. He is dealing with some political pressures.
Can you talk a little bit about what Powell is
dealing with in twenty twenty four a presidential electioneer?
Speaker 1 (08:24):
Sure, so, as if it wasn't hard enough to manage
what they call the soft landing, right, kind of layered
on top of that is this election. The Fed and J.
Powell will always say, and they emphasize over and over
and over again that the election and the politics of
these decisions, they are just not a factor. They are
looking purely at what's best for the economy.
Speaker 3 (08:44):
But of course the economy is one of the key
indicators of whether an incumbent president will win reelection. For Biden,
then it's crucial that the economy stays strong. To a
certain extent, He's based his campaign on the triumph of Bidenomics.
Speaker 1 (08:58):
And yet a lot of polls the voters have more
trust in the former president Donald Trump to steer the economy.
And so I think that for the Biden White House,
they want to see this healthy economy continue.
Speaker 3 (09:11):
And here's where all the pressure comes in for Powell.
Cutting interest rates now would make borrowing easier, boost spending,
and give the economy a little kick. Leaving rates where
they are could mean parts of the economy plateau or
even suffer.
Speaker 1 (09:24):
Democrats have been saying, hey, it's time to cut rates.
Are too high. You're risking the economy. There could be
a downturn. But if and when they start cutting rates
this year, there will be criticism from the right that
they're probably doing it to help Democrats. Right. We did
already hear the former president a few weeks back.
Speaker 3 (09:41):
This is Trump on Fox Business last month.
Speaker 1 (09:43):
It looks to me like he's trying to lower interest
rates for the sake of maybe getting people elected.
Speaker 3 (09:48):
I don't know. Listen to his tone. It's almost like
he's winking at the audience.
Speaker 4 (09:52):
So you think he's political.
Speaker 1 (09:54):
He's just going to cut rates to hell lighting it.
Speaker 3 (09:55):
I think he's politically. In a few other countries, this
is actually the way it works. The president or the
prime minister can call up the Central Bank and say
lower rates. That's an order.
Speaker 1 (10:07):
Not in the US. That was Congress in nineteen thirteen.
The Federal Reserve Acts, so a very long time ago,
they established this idea that the FED is independent, there's
not meant to be any sort of political influence on
the process.
Speaker 3 (10:21):
Why is the reality and the appearance of independence for
the FED so important?
Speaker 1 (10:28):
Well, I think that they need to be viewed as credible. Right.
Speaker 3 (10:32):
If politicians can come in and move interest rates around
whenever they want, that can really mess with an economy.
A central bank's neutrality means it can do things like
raise interest rates, which might hurt in the short run,
but also prevents inflation from spiraling out of control.
Speaker 1 (10:48):
There's a lot of research to suggest that countries where
there is more political pressure, they tend to have higher
inflation over time.
Speaker 3 (10:54):
So maintaining that independence is good for the economy in
a very real way.
Speaker 1 (10:59):
For sure.
Speaker 3 (11:00):
When US presidents are supposed to respect that independence, you know,
let the central bank do its thing. Which is why
it was a little bit shocking when Biden said this
at a campaign event in Philadelphia last week.
Speaker 5 (11:11):
Guess what, I can't guarantee it, but I bet you.
I bet you that might come down more because I
bet you that that little outfit that sets interest rates
it's going to come down.
Speaker 3 (11:26):
Why do you think he said that I don't know.
Speaker 1 (11:29):
I certainly was surprised when I saw the alert on
my phone or the email traffic in the Bloomberg News
run because it is a little bit unusual. It wasn't
saying anything controversial. It was more just observing what he
thinks is likely. But even still that that's unusual.
Speaker 3 (11:42):
Unusual and maybe not in a good way. The White
House has already had to clean up after Biden's comments.
Here's Press Secretary Kareein John Pierre on Tuesday, right.
Speaker 5 (11:51):
I just want to be really clear, unlike previous presidents,
the president does very much believe on the importance of
the fit being independent.
Speaker 3 (11:59):
That the previous president she doesn't want to name is Trump.
He broke with a twenty five year tradition of presidents
trying to stay out of the Fed's lane. And when
that happened in twenty eighteen, Kate and I were both
beat reporters who got a front row seat to the theatrics
that's coming up. As President Trump broke with the tradition
(12:25):
of the executive branch remaining publicly neutral about the actions
of the Federal Reserve. My colleague Kate Davidson and I
covered it closely.
Speaker 1 (12:32):
As beat reporters.
Speaker 3 (12:34):
Do you remember what it was like when we heard
that President Trump back then was considering firing J. Powell
the sitting FED chair. I mean it was pretty unthinkable, right.
Speaker 1 (12:44):
He had been complaining about the FED chair pretty openly
in a way that reporters and the public and the
fedge hadn't seen in many, many many years, in a
way maybe they'd ever seen in such a public way.
You know, there had been reports and stories of previous
administrations maybe reaching out behind the scenes, but this was
on Twitter, right.
Speaker 3 (13:02):
He called J. Powell a bonehead.
Speaker 1 (13:04):
Yes, I'm trying to think that there was mone you know,
he think he said he was like a golfer with
no touch, or he couldn't nail the pot or something
like that. You know, he had a lot of I mean,
it was it was funny, except that it was alarming
in some ways. I think then we found out I
think it was uselely how that broke that story, right,
that that actually, in private, he was really searching for
ways to replace the FED chair.
Speaker 3 (13:26):
Yeah. It ruined a lot of people's Christmases because it
was Christmas. Because if a president could meddle in monetary policy,
the US dollar, and the entire global economy could be shaken.
That story I helped report was the breaking news grinch
that stole Christmas that year. It triggered a nearly three
percent drop in the S and P five hundred. Immediately,
investors everywhere worried that Trump's beef with Powell could put
(13:50):
global markets on fragile ground. So Powell has been here before,
and now he's doing all he can to reassure people
that the FED is not going to be bullied or
sway by politicians.
Speaker 1 (14:01):
I think that's something that's unique about Chair Powells. He's
very much aware of where lawmakers are and risks to
the FED. I mean, I think he definitely thinks about
it from the perspective of risks to the institution, right,
and that they don't want to be perceived as leaning
one way or the other for political reasons. Of course,
And he was on sixty minutes recently, and yeah.
Speaker 3 (14:22):
He went on sixty minutes. One of the main messages
that he had was to assure the public We're not
going to be influenced by politics. We're above the fray.
Even though it's twenty twenty four, you know.
Speaker 1 (14:32):
I would just say this integrity is priceless.
Speaker 3 (14:37):
Notice how he pretty much says the bare minimum at the.
Speaker 1 (14:40):
End, that's all you have, and we plan on keeping hours.
I mean, I feel like that's the quote that's going
to be, you know, in his biography one day. I
think that's genuinely how he feels. They don't want to
risk that.
Speaker 3 (14:52):
It's unusual for a FED chair to go on primetime
to talk about his job. Usually we hear from him
at press conferences, meticulously prepared speeches, or at those twice
a year hearings. Last week's kicked off with Patrick McHenry,
who you heard earlier. He's a North Carolina Republican and
chair of the House Financial Services Committee, which oversees the
(15:13):
Fed's work. He essentially gave Powell a warning.
Speaker 4 (15:17):
It's highly inappropriate for lawmakers to attempt to influence monetary policy,
jar Pal, I have faith that you will not allow
politics to cloud your judgment in the fight to tackle inflation.
Speaker 3 (15:29):
The way I hear it, this lawmaker is saying, we're
watching you. And during the rest of that three hour hearing,
Powell was in the hot seat from lawmakers on both
sides of the aisle.
Speaker 1 (15:40):
I think that he've used it as a really important
part of his job to be going up there and listening,
talking to lawmakers, finding out what their concerns are. I
think some lawmakers obviously are frustrated they're hearing from their
constituents about, for example, the high cost of housing right now,
housing affordability, like.
Speaker 3 (15:56):
This criticism from Massachusetts Democrat Ayana Presley eat.
Speaker 5 (16:00):
The FED to start cutting because like the rent, interest
rates are too damn high.
Speaker 3 (16:07):
You can hear Powell try to toe the line as
he's under fire. He's really careful not to say anything
that could be perceived as political. When Al Green, a
Democratic congressman from Texas, prompts Powell to reassure the public
that the US has successfully avoided a recession, he doesn't
take the bait.
Speaker 5 (16:24):
Will there would be some official statement that would give
people some comfort.
Speaker 1 (16:30):
I don't think by us, No. I think we're just
going to keep our heads down and do our jobs
and try to deliver what the public is expecting from us.
We wouldn't be, you know, declaring victory like that.
Speaker 3 (16:43):
Kate Trump, we know, has already talked about getting rid
of Powell. You would think someone whose job might disappear
soon would take a moment to boast about what they've done.
But Powell doesn't do that here. Why not?
Speaker 1 (16:58):
No, I mean, I just think the idea of announcing
mission accomplished is just not in the Fed's DNA as
an instant action. It's a good question. I mean, I
think they probably would view that as maybe sort of political.
He's going to let the politicians, I think, do the
talking and say probably as little as possible. There's not
going to be a lot of patting himself on the back.
Speaker 3 (17:20):
It's a tough needle to thread, though, because the economy
and politics can't be separated so easily. The Fed's decisions
are based in part on economic policies installed by Congress
and the executive branch. Part of Powell's job is keeping
tabs on those policies. Will there be more or less immigration?
And how will that affect the labor market? Will the
twenty seventeen tax cuts be renewed by the next administration.
(17:43):
All of these policies affect the data that the FED
looks at to make decisions that shape the economic fortunes
of millions of Americans. So can the FED actually convince
the public that it's independent amidst all of this politicking.
Speaker 1 (17:58):
I mean, they're certainly going to try. The next president,
whoever it will be, will play a role in deciding
who is going to be the next FED chairman, whether
they're going to keep J. Powell, whether they're going to
replace him with somebody else. I have no idea if
he wants another four years in this job. It's been
pretty crazy the time he has been at the HELM.
Speaker 2 (18:18):
But J.
Speaker 1 (18:18):
Powell is going to have to contend with a lot
of noise from a lot of lawmakers on both sides
of the aisle this year.
Speaker 3 (18:25):
And the closer we get to election day in November,
the more the Fed's actions will be put under the microscope.
Speaker 1 (18:30):
If the FED is cutting rates around that time, we
will probably hear from Donald Trump and from others his
allies really complaining about this.
Speaker 3 (18:39):
Meanwhile, the FED isn't out of the woods yet. They
still haven't nailed the soft landing, and some people think
a recession might still be in the cards.
Speaker 1 (18:46):
Look, the FED I think was and maybe still isn't
a really precarious position. I mean, they've been really successful,
fortunately for them and for Powell, in bringing inflation down
without this big rise and unemployment. Nobody thought they could
do it, so that's been good. But I think they
haven't totally finished the job, and that will be I
(19:07):
think really important for j Powell personally. It's certainly important
for his legacy. It's also about protecting the FED as
an institution and sort of making things right, if you will,
and showing that the FED might have had some missteps,
but that they came in and they did what they
needed to do when the moment really clearly demanded it.
Speaker 3 (19:26):
Until then, we can expect Powell's neutral balancing act to
continue as election politics rage around him.
Speaker 4 (19:33):
And with that, the hearings adjourned.
Speaker 3 (19:38):
Thanks for listening to the Big Take DC podcast from
Bloomberg News. And if you want to geek out more
about economic policy and the dollar, I have a book
coming out next week. It's called Paper Soldiers, all about
the Treasure Department and how it's used the dollar to
help secure the US's place in the world. I'm Salaiah Mosen.
This episode was produced by Julia Press. It was edited
(19:59):
by Stacy Van Nix, Smith and Matt Bosler. It was
mixed by Ben O'Brien. It was fact checked by Stacy
Renee Naomi Shaven is our senior producer. Michael Shepherd, Wendy
Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beemsterbower is
our executive producer. Sage Bowman is Bloomberg's head of podcasts.
Please subscribe and review The Big Take DC wherever you
(20:21):
listen to podcasts. It helps new listeners find the show.
Thanks for listening. We'll be back next week.
Bloomberg Audio Studios, podcasts, radio News.
Speaker 2 (00:08):
Hey, it's Sarah. The United States, as you probably know,
is in the middle of a complicated economic moment. The
Federal Reserve has been working to bring down inflation without
triggering a recession, and that challenge is tricky in an
election year. So today I'm turning the mic over to
my colleague Saliah Mosen, who has covered the Fed for years.
Here's Seleia.
Speaker 3 (00:29):
Last week, the halls of Congress were a buzz.
Speaker 4 (00:35):
Committee will come to order.
Speaker 3 (00:36):
It was a big day for the House Committee on
Financial Services.
Speaker 4 (00:39):
The Federal Reserves semi annual Monetary Policy Report, an inventive
title we use semi annually here on the.
Speaker 3 (00:47):
Committee, in case you missed it. That is a little
bit of Federal Reserve style of humor from Committee Chairman
Patrick McHenry.
Speaker 4 (00:54):
I see Chairman, pal smile. It's just three hours.
Speaker 3 (00:57):
In the hot seat. For those three hours is Room Powell,
who doesn't joke around much, and for good reason. He's
the chair of the Federal Reserve. His decisions about interest rates,
move markets and the entire economy. Not that you'll hear
that from him in start contrast to almost everyone else
in Washington. Powell shies away from dramatics. He's intentionally kind
(01:20):
of boring and tends to downplay the power of the
fed's actions. Listen to his response to Gregory Meeks, a
New York Democrat.
Speaker 2 (01:28):
Inface it is also now coming down faster than any
place else on the planet, just about Is that not correct?
Speaker 1 (01:36):
I think that's right.
Speaker 3 (01:37):
Yeah, Powell's response is pretty bland, But bland is kind
of the point for the FED chair. When Powell speaks,
markets move, so he doesn't want to be dramatic or
declare mission accomplished.
Speaker 1 (01:50):
We wouldn't be, you know, declaring victory.
Speaker 3 (01:52):
Like that, or do anything that people might interpret as
a hint to what FED policy will look like.
Speaker 1 (01:57):
In the future.
Speaker 3 (01:59):
He's special, doesn't want to say anything that might be
seen as political, and that puts him in a really
tough spot right now, because the US economy is at
the center of the twenty twenty four election and the
decisions that Powell and the FED may have a powerful
effect on the economy that each candidate hopes will hand
him the White House. Today on the show, I speak
(02:22):
with Bloomberg Fed editor Kate Davidson about the Central Banks
politics problem. And the growing pressure on J. Powell.
Speaker 1 (02:29):
The closer we get to the election in November, we
can expect that things are going to get a little spicy.
Speaker 3 (02:35):
Can the FED battle inflation in the glare of electioneer
politics all while maintaining its independence from Bloomberg's Washington bureau.
This is the Big Take DC Podcast.
Speaker 1 (02:46):
I'm Salaiah Mosen.
Speaker 3 (02:55):
I've covered economic policy for years from the White House, angle,
the Treasury Department, Congress, the FED. I even have a
book coming out all about the dollar, so I can
get pretty wonky. But someone who never gets bored talking
policy with me is my colleague Kate Davidson.
Speaker 1 (03:10):
I lead our Federal Reserve coverage, and honestly, when I
first came to Washington and I got into covering the
banking industry and regulation after the two thousand and eight
financial crisis, I kind of found myself thinking, like, how
did I stumble into this? How do I explain this
to people? It feels so removed from my everyday life
and what seems important to me? But I quickly realized
(03:32):
it is so important.
Speaker 3 (03:33):
Kate was my arch rival at the Wall Street Journal
and political for years. We were always competing for scoops,
but now we're scooping for the same team, and there's
nobody better to break down the job of the Federal Reserve.
Speaker 1 (03:45):
So the FED is charged with basically managing the economy.
And the primary way that the FED affects our lives
is by influencing the cost to borrow money.
Speaker 3 (03:56):
The cost to borrow money as an interest rates. When
the FED wants people to spend more, you know, juice
the economy, it lowers interest rates, so it's cheaper to borrow.
When it's cheaper to borrow, people and businesses spend more,
they buy more, invest more. That grows the economy. When
the FED raises interest rates, people borrow less, they spend less,
(04:17):
and the economy slows down.
Speaker 1 (04:19):
So credit card rates, auto loans, mortgages, all of these
things are influenced by the rate that the FED sets.
Speaker 3 (04:28):
Now, one thing that you said was a little bit confusing.
Why would the Fed want to slow down a consumer
driven economy.
Speaker 1 (04:34):
Yeah, well, it all goes back to inflation.
Speaker 3 (04:37):
Inflation meaning price is rising. The FED likes to see
prices rise at a predictable rate a little bit every year.
It means the economy is healthy. But over the last
few years, prices have risen a lot. When inflation gets
too high, it's bad for the economy and for people.
Higher prices mean each dollar you earn buys you less.
(04:59):
That's why your grosser bill has been so much higher recently.
To bring prices down, meaning slow inflation, the central Bank's
main tool interest.
Speaker 1 (05:07):
Rates, and so really the primary tool the FED has
with interest rates is to try to what they say
is cool demand, is to slow down spending. That's really
the whole game for the Fed. They have to try
to discourage people from spending money.
Speaker 3 (05:22):
Between March of twenty twenty two and July of twenty
twenty three, the FED raised interest rates eleven times. That
brought down prices, but it also slowed the economy. And
many economists saw this and said the Fed is going
to trigger a recession. But that recession never came. And
now those same economists are saying that j. Powell and
(05:42):
the Fed have pulled off a so called soft.
Speaker 1 (05:44):
Landing, trying to make sure inflation comes all the way
back down to a level they think is appropriate for
healthy economy without causing a big downturn in the labor market,
without having tons of layoffs.
Speaker 3 (05:56):
Not everyone's convinced the economy is working for them. So far,
unemployment in the US is near record lows and prices
have come down a lot. A soft landing would be
a big win for Powell.
Speaker 1 (06:09):
He's an interesting guide. He's not an economist. You know,
a lot of FED leaders typically have been these PhD economists,
and J Powell as a lawyer, he kind of stumbled
into this role. As a FED governor. He had played
a really pivotal role during the debt sealing crisis in
twenty thirteen. He was seen as someone who could reach
out to Republicans on Capitol Hill and explain to them
(06:32):
why it would be a terrible thing for financial markets
if we were to breach the debt ceiling.
Speaker 3 (06:36):
Powell has been working at the Federal Reserve for years.
He was nominated as chair in twenty seventeen by President
Trump and then confirmed by the Senate, and President Biden
kept him in that role when he took office. He
seems to be really well liked by a lot of people.
Speaker 1 (06:52):
I think he's pretty even keeled, and I think that
people really appreciate that he's pretty plain spoken because he's
not an economist, so he tries to explain things very simply,
and he I think realizes that he's speaking to the
American people. He's speaking of financial markets, of course, and
that's really important, but he doesn't lean into these very
complicated economic ideas.
Speaker 3 (07:13):
Doesn't he play the electric guitar?
Speaker 1 (07:16):
Yeah, he plays the guitar. He's a big grateful Dead fan.
He was spotted at a concert in the Washington area
last summer at a Dead and Company show. He was
asked about it when he was testifying on Capitol Hill.
Speaker 2 (07:28):
Oh, it was terrific.
Speaker 1 (07:28):
What can I say? So it was great. I've been
a grateful Dead fan for fifty years.
Speaker 3 (07:35):
Is he in touch with the average American? Because I
know he's a member of a couple of country clubs
or exclusive clubs that have like twenty fifty thousand year entries.
Speaker 1 (07:45):
And that's sort of the knock on him, right, He
is a Beltway inside. Or he might say he went
to Georgetown Prep in Washington, which is where Neil Gorsich
and Brett Kavanaugh also went to school. I mean he
worked at the Carlisle Group. He certainly is very wealthy
and wealthier than most Americans, and so I think that
I don't know that you could say he's exactly relatable,
(08:08):
but he tries.
Speaker 3 (08:10):
So Powell is dealing with the economy, but the economy
isn't Powell's only consideration. He is dealing with some political pressures.
Can you talk a little bit about what Powell is
dealing with in twenty twenty four a presidential electioneer?
Speaker 1 (08:24):
Sure, so, as if it wasn't hard enough to manage
what they call the soft landing, right, kind of layered
on top of that is this election. The Fed and J.
Powell will always say, and they emphasize over and over
and over again that the election and the politics of
these decisions, they are just not a factor. They are
looking purely at what's best for the economy.
Speaker 3 (08:44):
But of course the economy is one of the key
indicators of whether an incumbent president will win reelection. For Biden,
then it's crucial that the economy stays strong. To a
certain extent, He's based his campaign on the triumph of Bidenomics.
Speaker 1 (08:58):
And yet a lot of polls the voters have more
trust in the former president Donald Trump to steer the economy.
And so I think that for the Biden White House,
they want to see this healthy economy continue.
Speaker 3 (09:11):
And here's where all the pressure comes in for Powell.
Cutting interest rates now would make borrowing easier, boost spending,
and give the economy a little kick. Leaving rates where
they are could mean parts of the economy plateau or
even suffer.
Speaker 1 (09:24):
Democrats have been saying, hey, it's time to cut rates.
Are too high. You're risking the economy. There could be
a downturn. But if and when they start cutting rates
this year, there will be criticism from the right that
they're probably doing it to help Democrats. Right. We did
already hear the former president a few weeks back.
Speaker 3 (09:41):
This is Trump on Fox Business last month.
Speaker 1 (09:43):
It looks to me like he's trying to lower interest
rates for the sake of maybe getting people elected.
Speaker 3 (09:48):
I don't know. Listen to his tone. It's almost like
he's winking at the audience.
Speaker 4 (09:52):
So you think he's political.
Speaker 1 (09:54):
He's just going to cut rates to hell lighting it.
Speaker 3 (09:55):
I think he's politically. In a few other countries, this
is actually the way it works. The president or the
prime minister can call up the Central Bank and say
lower rates. That's an order.
Speaker 1 (10:07):
Not in the US. That was Congress in nineteen thirteen.
The Federal Reserve Acts, so a very long time ago,
they established this idea that the FED is independent, there's
not meant to be any sort of political influence on
the process.
Speaker 3 (10:21):
Why is the reality and the appearance of independence for
the FED so important?
Speaker 1 (10:28):
Well, I think that they need to be viewed as credible. Right.
Speaker 3 (10:32):
If politicians can come in and move interest rates around
whenever they want, that can really mess with an economy.
A central bank's neutrality means it can do things like
raise interest rates, which might hurt in the short run,
but also prevents inflation from spiraling out of control.
Speaker 1 (10:48):
There's a lot of research to suggest that countries where
there is more political pressure, they tend to have higher
inflation over time.
Speaker 3 (10:54):
So maintaining that independence is good for the economy in
a very real way.
Speaker 1 (10:59):
For sure.
Speaker 3 (11:00):
When US presidents are supposed to respect that independence, you know,
let the central bank do its thing. Which is why
it was a little bit shocking when Biden said this
at a campaign event in Philadelphia last week.
Speaker 5 (11:11):
Guess what, I can't guarantee it, but I bet you.
I bet you that might come down more because I
bet you that that little outfit that sets interest rates
it's going to come down.
Speaker 3 (11:26):
Why do you think he said that I don't know.
Speaker 1 (11:29):
I certainly was surprised when I saw the alert on
my phone or the email traffic in the Bloomberg News
run because it is a little bit unusual. It wasn't
saying anything controversial. It was more just observing what he
thinks is likely. But even still that that's unusual.
Speaker 3 (11:42):
Unusual and maybe not in a good way. The White
House has already had to clean up after Biden's comments.
Here's Press Secretary Kareein John Pierre on Tuesday, right.
Speaker 5 (11:51):
I just want to be really clear, unlike previous presidents,
the president does very much believe on the importance of
the fit being independent.
Speaker 3 (11:59):
That the previous president she doesn't want to name is Trump.
He broke with a twenty five year tradition of presidents
trying to stay out of the Fed's lane. And when
that happened in twenty eighteen, Kate and I were both
beat reporters who got a front row seat to the theatrics
that's coming up. As President Trump broke with the tradition
(12:25):
of the executive branch remaining publicly neutral about the actions
of the Federal Reserve. My colleague Kate Davidson and I
covered it closely.
Speaker 1 (12:32):
As beat reporters.
Speaker 3 (12:34):
Do you remember what it was like when we heard
that President Trump back then was considering firing J. Powell
the sitting FED chair. I mean it was pretty unthinkable, right.
Speaker 1 (12:44):
He had been complaining about the FED chair pretty openly
in a way that reporters and the public and the
fedge hadn't seen in many, many many years, in a
way maybe they'd ever seen in such a public way.
You know, there had been reports and stories of previous
administrations maybe reaching out behind the scenes, but this was
on Twitter, right.
Speaker 3 (13:02):
He called J. Powell a bonehead.
Speaker 1 (13:04):
Yes, I'm trying to think that there was mone you know,
he think he said he was like a golfer with
no touch, or he couldn't nail the pot or something
like that. You know, he had a lot of I mean,
it was it was funny, except that it was alarming
in some ways. I think then we found out I
think it was uselely how that broke that story, right,
that that actually, in private, he was really searching for
ways to replace the FED chair.
Speaker 3 (13:26):
Yeah. It ruined a lot of people's Christmases because it
was Christmas. Because if a president could meddle in monetary policy,
the US dollar, and the entire global economy could be shaken.
That story I helped report was the breaking news grinch
that stole Christmas that year. It triggered a nearly three
percent drop in the S and P five hundred. Immediately,
investors everywhere worried that Trump's beef with Powell could put
(13:50):
global markets on fragile ground. So Powell has been here before,
and now he's doing all he can to reassure people
that the FED is not going to be bullied or
sway by politicians.
Speaker 1 (14:01):
I think that's something that's unique about Chair Powells. He's
very much aware of where lawmakers are and risks to
the FED. I mean, I think he definitely thinks about
it from the perspective of risks to the institution, right,
and that they don't want to be perceived as leaning
one way or the other for political reasons. Of course,
And he was on sixty minutes recently, and yeah.
Speaker 3 (14:22):
He went on sixty minutes. One of the main messages
that he had was to assure the public We're not
going to be influenced by politics. We're above the fray.
Even though it's twenty twenty four, you know.
Speaker 1 (14:32):
I would just say this integrity is priceless.
Speaker 3 (14:37):
Notice how he pretty much says the bare minimum at the.
Speaker 1 (14:40):
End, that's all you have, and we plan on keeping hours.
I mean, I feel like that's the quote that's going
to be, you know, in his biography one day. I
think that's genuinely how he feels. They don't want to
risk that.
Speaker 3 (14:52):
It's unusual for a FED chair to go on primetime
to talk about his job. Usually we hear from him
at press conferences, meticulously prepared speeches, or at those twice
a year hearings. Last week's kicked off with Patrick McHenry,
who you heard earlier. He's a North Carolina Republican and
chair of the House Financial Services Committee, which oversees the
(15:13):
Fed's work. He essentially gave Powell a warning.
Speaker 4 (15:17):
It's highly inappropriate for lawmakers to attempt to influence monetary policy,
jar Pal, I have faith that you will not allow
politics to cloud your judgment in the fight to tackle inflation.
Speaker 3 (15:29):
The way I hear it, this lawmaker is saying, we're
watching you. And during the rest of that three hour hearing,
Powell was in the hot seat from lawmakers on both
sides of the aisle.
Speaker 1 (15:40):
I think that he've used it as a really important
part of his job to be going up there and listening,
talking to lawmakers, finding out what their concerns are. I
think some lawmakers obviously are frustrated they're hearing from their
constituents about, for example, the high cost of housing right now,
housing affordability, like.
Speaker 3 (15:56):
This criticism from Massachusetts Democrat Ayana Presley eat.
Speaker 5 (16:00):
The FED to start cutting because like the rent, interest
rates are too damn high.
Speaker 3 (16:07):
You can hear Powell try to toe the line as
he's under fire. He's really careful not to say anything
that could be perceived as political. When Al Green, a
Democratic congressman from Texas, prompts Powell to reassure the public
that the US has successfully avoided a recession, he doesn't
take the bait.
Speaker 5 (16:24):
Will there would be some official statement that would give
people some comfort.
Speaker 1 (16:30):
I don't think by us, No. I think we're just
going to keep our heads down and do our jobs
and try to deliver what the public is expecting from us.
We wouldn't be, you know, declaring victory like that.
Speaker 3 (16:43):
Kate Trump, we know, has already talked about getting rid
of Powell. You would think someone whose job might disappear
soon would take a moment to boast about what they've done.
But Powell doesn't do that here. Why not?
Speaker 1 (16:58):
No, I mean, I just think the idea of announcing
mission accomplished is just not in the Fed's DNA as
an instant action. It's a good question. I mean, I
think they probably would view that as maybe sort of political.
He's going to let the politicians, I think, do the
talking and say probably as little as possible. There's not
going to be a lot of patting himself on the back.
Speaker 3 (17:20):
It's a tough needle to thread, though, because the economy
and politics can't be separated so easily. The Fed's decisions
are based in part on economic policies installed by Congress
and the executive branch. Part of Powell's job is keeping
tabs on those policies. Will there be more or less immigration?
And how will that affect the labor market? Will the
twenty seventeen tax cuts be renewed by the next administration.
(17:43):
All of these policies affect the data that the FED
looks at to make decisions that shape the economic fortunes
of millions of Americans. So can the FED actually convince
the public that it's independent amidst all of this politicking.
Speaker 1 (17:58):
I mean, they're certainly going to try. The next president,
whoever it will be, will play a role in deciding
who is going to be the next FED chairman, whether
they're going to keep J. Powell, whether they're going to
replace him with somebody else. I have no idea if
he wants another four years in this job. It's been
pretty crazy the time he has been at the HELM.
Speaker 2 (18:18):
But J.
Speaker 1 (18:18):
Powell is going to have to contend with a lot
of noise from a lot of lawmakers on both sides
of the aisle this year.
Speaker 3 (18:25):
And the closer we get to election day in November,
the more the Fed's actions will be put under the microscope.
Speaker 1 (18:30):
If the FED is cutting rates around that time, we
will probably hear from Donald Trump and from others his
allies really complaining about this.
Speaker 3 (18:39):
Meanwhile, the FED isn't out of the woods yet. They
still haven't nailed the soft landing, and some people think
a recession might still be in the cards.
Speaker 1 (18:46):
Look, the FED I think was and maybe still isn't
a really precarious position. I mean, they've been really successful,
fortunately for them and for Powell, in bringing inflation down
without this big rise and unemployment. Nobody thought they could
do it, so that's been good. But I think they
haven't totally finished the job, and that will be I
(19:07):
think really important for j Powell personally. It's certainly important
for his legacy. It's also about protecting the FED as
an institution and sort of making things right, if you will,
and showing that the FED might have had some missteps,
but that they came in and they did what they
needed to do when the moment really clearly demanded it.
Speaker 3 (19:26):
Until then, we can expect Powell's neutral balancing act to
continue as election politics rage around him.
Speaker 4 (19:33):
And with that, the hearings adjourned.
Speaker 3 (19:38):
Thanks for listening to the Big Take DC podcast from
Bloomberg News. And if you want to geek out more
about economic policy and the dollar, I have a book
coming out next week. It's called Paper Soldiers, all about
the Treasure Department and how it's used the dollar to
help secure the US's place in the world. I'm Salaiah Mosen.
This episode was produced by Julia Press. It was edited
(19:59):
by Stacy Van Nix, Smith and Matt Bosler. It was
mixed by Ben O'Brien. It was fact checked by Stacy
Renee Naomi Shaven is our senior producer. Michael Shepherd, Wendy
Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beemsterbower is
our executive producer. Sage Bowman is Bloomberg's head of podcasts.
Please subscribe and review The Big Take DC wherever you
(20:21):
listen to podcasts. It helps new listeners find the show.
Thanks for listening. We'll be back next week.
Hosts And Creators
Sarah Holder
Saleha Mohsin
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