March 13, 2023 • 44 mins
In the short term, the Federal Reserve's job is straightforward. Raise or lower interest rates in order to meet its employment and inflation targets. But over the years, it has evolved to do a lot more than just set the price of short-term bank borrowing. With each successive crisis, the Fed has taken on new powers and responsibilities to stabilize finance, markets and the broader economy. And with Washington characterized by partisan gridlock, the Fed is seen as the one entity that can actually move with some agility when it's needed. On this episode, we speak with Jeanna Smialek, a Fed reporter at the New York Times, and the author of the new book Limitless: The Federal Reserve Takes on a New Age of Crisis, about the history of the Fed and how it became so powerful.
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Speaker 1 (00:10):
Hello, and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, do you
remember like after the Great Financial Crisis and the FED
couldn't get the unemployment rate down even with all the
raid cuts, and people were talking about like monetary policy
is pushing on a string in this environment. You remember
hearing that termola? You know what I remember? I remember
(00:32):
people complaining about below target inflation for many, many, many
years and how the FED we couldn't figure out why
the FED wasn't able to push up prices, and now
fast forward to you know, twenty twenty three, we can't
figure out why the FED can't bring inflation under control.
I don't want to insult like the various like brilliant
(00:52):
economists and pundits out there. I never would, but I
always found the complaints about like too low inflation to
just be like hilarious, as if that is, as if
there was ever like a real problem that anyone in
the world faced. But I do think it's interesting, like
you know, this pushing on a string narrative, everyone's sort
of assumed that, Okay, maybe it's hard for the FED
(01:12):
to get unemployment down, but that if inflation were to accelerate, well,
at least we know how to deal with that. Yeah.
But at the same time, there was this weird sort
of discrepancy or tension because the FED couldn't figure out
how to push down employment or push up prices at
that time, but it seemed to do a reasonably good
(01:34):
job of like intervening in markets. Yeah, and this was
this was the chorus that you heard for so many years,
the FED is coming in and distorting the markets, which
you know, tacitly admits that they do have an impact there. Yeah.
I think that's sort of like one thing that everyone
agrees on, especially in the wake of you know, the
(01:56):
the massive spasms in March twenty twenty, and then of
course also in the wake of the Great Financial Crisis.
The FED is pretty good at stopping financial crisis when
there's a run on some sort of bank if it
so chooses that. Like, maybe the FED can't get inflation
at target when it plans, maybe it can't get employment
at maximum employment, but it can definitely stop bank runs. Well,
(02:17):
the other thing I would say, and we should stop
talking soon because our guests, Yeah, we could keep going forever.
But I think people forget how much things have changed
in the span of let's see, like fourteen or fifteen years,
because I remember, you know, I remember writing about the
corporate bond market and it was like, ooh, maybe one
(02:38):
day the FED will have to come in and bail
out the corporate bomb market, and that was the worst
thing that could happen. That was like, I got so
much pushback on that, and then lo and behold, twenty
twenty two happens, and the FED comes in and rescues
not only the corporate bomb market, but treasuries, munies, pretty
much everything, and it's sort of an accepted state of
(02:59):
as now right. And of course this is one of
the things we talked about in a recent episode, our
live episode with a love Menend and Josh Younger. Anyway,
let's get right to it. Let's talk more about how
the FED has taken on these new powers, these new responsibilities,
what it can do, what it can't do. We're going
to be speaking with Gina Smilet, fed reporter at the
(03:19):
New York Times, also a former Bloomberger, a former colleague
of US, and the author of the new book Limitless.
The Federal Reserve takes on a new age of crisis,
which I see is number one and the Amazon money
and monetary policy. Ken, Gina, thank you so much for
coming on Oblots. Yeah, thank you for having me. Congratulations
on the new book. You know, I'm curious about the
(03:42):
title because limitless and obviously we talked about like, okay,
these new powers that the FED has taken on both
in the wake of the Great Financial Crisis and also
the COVID shock, and yet there there does seem to
be a limit on its actual dual mandate, as in,
doesn't even have the tools to do like the two
things max employment and stable prices that we think of
(04:03):
as being the Fed's core mission. Yeah, so I think
they're actually fairly interrelated. So the title itself actually comes
from something Chair Jerome Powell said during sort of the
depths of the twenty twenty pandemic upheaval. You know, he
was doing an interview with David Wessel at the Brookings Institution,
and David asked him, you know, is there a limit
to how much the FED can do to sort of
(04:26):
save all of these markets that are crashing. I'm paraphrasing,
but that visual gist of it, and he said effectively,
you know, no, there's no limit we can do, you know,
as much of this as we need to within the
confines of the law. And so that's that's where the
title draws from. And I do think that's relatively accurate,
you know, in the sense that these emergency powers that
they used to save markets, like Tracy was just alluding to,
(04:47):
very broad, very comprehensive, can be stretched in a lot
of ways, and that's a lot of what I talk
about in the book. But then at the same time,
you know, when you're busily stretching those in all the
ways that you're stretching them, it doesn't necessarily of guarantee
a smooth on ramp back to solid growth and stable
inflation when we get to the other side of a crisis.
(05:08):
Maybe just to go back in time a little bit,
and this is one of the themes that emerged from
our conversations with Josh Younger and love Men and but
this idea that the Fed's mandate and its role has
really changed over time. Can you talk to us about,
you know, what was the original conception of the FED
versus what it is today. Yes, So I spend a
(05:30):
huge amount of time on this in the book because
I think it's just so interesting, and I think the
upshot is basically, the FED as it is today is
not the FED as it was originally envisaged in nineteen
thirteen when it was set up in basically anyway, nineteen thirteen,
FED was set up to be a really limited institution
that was basically going to come in and prevent runs
(05:51):
on the bank, which were very frequent characteristic of society.
In that time. We had just had a bunch of
big financial crises, including a very painful one in nineteen
oh seven that cost a very bad recession, and so
that was sort of the idea is we need some
sort of institution that can both sort of make money
more organized and make sure that it's not getting stuck
in Tallahassee when you need it in somewhere in the
(06:13):
middle of Kentucky. And we need an institution that can
make sure there's sort of a lender of last resort,
somebody who can back up markets in times of crisis.
So those emergency powers always kind of they're very limited
at the outset. The monetary policy powers really not there
at the outset, because we were if you recall back,
you know, we're on the gold standard that sort of
had some sort of self breaking mechanism. We regularly drop
(06:34):
the gold standard. So, I mean it was not some
cure all solution for inflation, but just the way we
thought about inflation and society very different at the time,
and the FED didn't have such a developed role in
sort of regulating the speed of the economy back then.
FED independence is a term that you hear a lot,
and I feel like it has different definitions and different contexts.
(06:56):
But can you talk about, like where did this term
come from and what did it mean? Like, what is
this idea? What was the purpose of it? What do
people mean? And where did it? Yeah? Where did it
originate from? Yeah? So we need to do a little
bit more history right here. So you get up through
the nineteen thirties and the FED has really kind of
figured out how to actually do some macroeconomic management. They
(07:17):
sort of figure out that if you buy and sell bonds,
it can guide interest rates into place you can either
speed up the economy and slow times or slow it
down when you need to. And up into the nineteen fifties,
the FED really starts to take on sort of this
inflation management job and what we see in the nineteen
fifties is the Truman administration is really leaning on the
Federal Reserve to keep interest rates very low, to try
(07:40):
and sort of buy bonds, use it its ability to
print money effectively to help sort of fund war efforts,
fund you know, the fiscal fiscal policies that they want
to do. And the FED is very concerned about inflation,
and so we see this real rebellion at the FED
where they work very hard to wrestle their wrestle control
over their policies. Back. Mariner Eccles, who's one of the
(08:02):
sort of important pivotal figures in early FED history, actually
ends up releasing an account of a very sort of
thans meeting between the Truman administration and the FOMC to
the press. It embarrasses the administration. The administration decides to
come to some sort of agreement with the Fed, and
we get this nineteen fifty one Fed Treasury Accord, which
really hands the FED a lot of independence over monetary policy,
(08:25):
a lot of ability to not necessarily set the targets itself.
You know, it still has to aim for maximum employment
and stable inflation, as Congress eventually defines, but it does
get to decide how it's going to go about those jobs,
completely independent of the partisan process. So it's funny you're
talking about this because I wrote about it and we
talked a lot about it with Josh Younger on that
(08:47):
episode about the origins of the shadow banking system and
sort of the modern financial system as well. But just
to back up slightly, when we talk about central bank
independence nowadays, we generally talk about it as a good thing,
and it's often considered a hallmark of a developed economy
versus say, in an emerging market with perhaps more institutional weakness,
(09:10):
where the central bank might be pressured to do whatever
the government wants. Why is it desirable to have an
independent FED that is perhaps a little bit more free
from the types of political considerations that you would see
in electric politicians. Yeah, I think a huge part of
the reason we treat it as sort of the gospel
(09:31):
that it is that FED independence should be protected at
all costs traces back to the nineteen seventies. So in
the nineteen seventies we had an inflation situation not hugely
unlike the one today, originally caused by some supply issues,
some excess demand issues tied to war efforts, and it
just lasted for years and years, and the FED would
(09:52):
occasionally raise rates to try and bring it back under control,
but then when unemployment went up, they would quickly lower
the rates again, and they just never got a handle
on it. Historians economic historians think that part of the
reason for that is Burned then the FED chair was
really caving to the Nixon administration. Nixon was very nervous
about reelection. He wanted rates to stay low. Low rates
(10:13):
translates to low unemployment, and so that was sort of
the conceit. And it's pretty clear from tapes that were
released after the fact that Burns, a huge Nixon loyalist,
did in fact take that into consideration when setting monetary policy.
And so the idea is, you just don't want to
have these short term political considerations in place when you're
doing something as important and potentially painful as fighting inflation,
(10:34):
because it puts away your decision making in a way
that allows inflation to become sort of entrenched in the economy.
And we really saw in that episode that it was
very difficult to get inflation out once it had been
so ingrained in economy. There was what people now refer
to as this inflationary psychology that got just sort of
really dug in and took a big recession to wipe out.
(11:12):
Let me sort of like zoom up a bit towards
the present day, and I'm we're happy to go back
into the history because I think that's interesting. But one
dynamic that feels real, and tell me if I'm wrong,
is that one nice thing about the FED is that
it can sort of just move, and that there is like,
I think people have very low expectations for what Congress
(11:33):
can do on anything these days. It's sort of like
every once in a while you get a window where
one party controls the White House and both Houses of Congress,
and then they have a limited political capital to spend,
whereas in theory, the FED can just move very fast,
and we saw that in the middle of March twenty twenty,
for example. How much of the sort of accumulation of
(11:54):
powers that the FED has, particularly over the last fifteen
years during a period of like deep partisan division, is
simply a function of well, it's one institution in DC
that is not riven by partisan gridlock. Yeah, So I
think this is sort of the central conceit of my
book is we've built up all these powers over a
time basically because they always made sense in the moment,
(12:16):
and now we're using them all simultaneously because of the
situation in Washington, and so I think, you know, everything
we've talked about so far, so nineteen thirteen we're set
up to guard against banking crises. Nineteen thirties, we really
deepen those powers to guard against banking crises because that's
the problem of the day. Nineteen fifties, the problem of
the day is increasingly inflation. Nineteen seventies, that is the
big problem. And so you have sort of these like
(12:38):
ebbs and flows where everybody's focused, everyone at the fedest
focused on banking crises, then everyone at the fetist focused
on inflation. Suddenly we get to the modern era and
everything is suddenly the FEDE job. You know, we're very
concerned with sort of the monetary policy management portion here,
but we're also using them pretty aggressively to fend off
financial crises and moments of financial crises. And I think
a lot of the reason for that is because some
(12:59):
of the things that they can do in moments of
financial crisis are a lot easier than coming to some
sort of agreement on Capitol Hill on either a bank
regulation that might preempt some of those financial problems, or
be some sort of bailout for the institutions that are
a problem. So it's a small miracle whenever Congress manages
to pass a law and yet the Fed can announce
(13:21):
like a trillion dollar program. It seems almost overnight. Why
is that. Talk to us a little bit more about
the process and what limitations, if any, there actually are.
I guess the clue is in the name of your
book limitless. But if there are limitations or constraints in
what the FED can do, Yeah, so there are some limitations,
but I think that they're actually often exaggerated, even by
(13:43):
the experts who know a lot about this. So in
moments of extreme crisis, the FED basically has to get
a declaration that we are in an unusual and exigent circumstance,
and it then has to get sign off from the
Treasury Secretary in order to set up an emergency lending
facility to help in organization or entity. The facility has
to be broad based, which lawyers generally mean think means
(14:05):
about five institutions would have to be able to tap
it and the FED has to be secured to its satisfaction,
which means that it can't expect to lose money depending
on whatever it's defining as its satisfaction. Most lawyers at
the FED will tell you that this means they can't
lose money. Lawyers outside the FED will say, that's kind
of dicey. We're not actually sure that that's true. I
mean that has always seemed to be really fluid, because
(14:28):
I remember post two thousand and eight, when the FED
was doing one of its bond buying programs. Oh, it
was buying mortgage backed securities mbs, and it said it
was only buying investment grade mbs. And I remember looking
up each individual q set for like a week and
seeing that some of it wasn't investment grade when the
FED bought it. But it didn't seem that concerned with
(14:51):
that aspect of the program. Yeah, that's and that was
actually technically quey. But I think the same basic rules
supply with these emergency lending facilities. They really are pretty broad, though.
There's so I think I'm really interesting. The example here
that comes up a lot is there is this one
program within the nerdiest name of all time. I think
because nobody wants to talk about it, but it's the
term asset loan facility, and basically what it does is
(15:12):
it buys like it takes honest collateral bundle towns. I
remember TAP, yeah, yeah, And so we used it twice.
We used it in two thousand and eight. We used
it again in twenty twenty. The two thousand and eight
version was collateralized by the private sector. The FED didn't
have any government money backing that up. And that's always
sort of the idea is that, oh, well, there's some
constraints in here because Congress has to appropriate some money
(15:33):
to back up these facilities. That's clearly not technically true
based on the way we've actually done this in the past,
And so I think there are fewer limits then maybe
we appreciate. But the one thing that does seem to
be a real limit is the FED doesn't really have
a way of just like giving household buying power, which
of course was a really powerful aspect. It would seem
(15:54):
of the V shaped recovery we saw it coming out
of twenty twenty. It was a probable a big aspect
of the very slow recovery we saw out of two
thousand and nine, the very modest fiscal stimulas, especially in retrospect,
not even a trillion from the Obama administration. And it
feels like a lot of the frustration that people have
towards the FIT is that it does, on some sense
(16:16):
seem to be limitless designing these new programs, but actually
the one thing that might actually move the dial big
time or meaningfully from a macro perspective, give people money.
That's still like the one thing they don't really have
any way of doing right, lending not spending. It is
sort of the phrase Jo repeats at nauseam. They can lend,
they cannot spend. You can do lending in ways that
(16:36):
look a little bit like spending, you know. I think
we saw some push to do that during the depths
of twenty twenty, like there were some ideas about making
loans to municipalities really long termed and really low rate,
and we didn't actually see them take up that up
too much. I think they still very much see themselves
as backstop entities who shouldn't be used in that way
(16:57):
because it's just too close to fiscal policy. But again,
I think that's more of a personnel choice that's being
made versus something that is necessarily legally extremely required, which
I think is an interesting thing to talk about. And
I think that, you know, the interesting thing to watch
is how are these programs used in the future. You know,
will they continue to see them as this backstop? Do
(17:18):
they think this fiscal separation is very important? So just
on that topic, I mean, one of the things that
you will sometimes hear people in markets talk about is
this idea of the FED getting bang for its book.
And I guess it was most salient maybe with the
corporate bond buying program, where they announced, you know, we
could spend this much buying up corporate bonds to stabilize
(17:40):
the market. But in practice, I think I can't even
remember the exact number. You might know it, but it
was a fraction of the announced amount that they could do.
And just by virtue of saying that they were going
to backstop the market, they brought in credit spreads very,
very dramatically. Is that always going to be the case
(18:01):
or is there a possibility that as the FED takes
on more and more responsibilities and if it maybe has
to use these things over and over again, that sort
of firepowers starts to dissipate. I think This is such
an interesting question, and I do not pretend to be
enough of an expert at market it's to have a
great answer to it. But I've talked to a lot
of people about this, and I think you actually get
(18:22):
a range of opinions. There are some people who say,
you know, they're such a credible lender of last resort
that this is basically going to stay this way, that
you know, we people it'll work forever. Yeah, people believe them.
I think other people will sometimes point you towards some
of the treasury market dysfunction that we saw really early
in the crisis, where it didn't seem like people were
being completely reassured. And I actually think that's an interesting
(18:46):
distinction because I think that speaks to sort of market fragmentation,
you know, it just to sort of rewind the tape here,
back in twenty twenty, people were dumping treasuries. It wasn't
like one or two entities, and they weren't necessarily all
US based dumping treasuries. It was everybody. It was hedge
funds who had basis trades on, it was a lot
of international holders. A lot of the selling was coming
(19:07):
out of like the Cayman islands, and so I think
there was this real sort of signal problem where the
FED might be stepping up. You might be pretty familiar
with what the Fed's doing, but there was this idea like,
you know, how aggressively are they going to do this?
Can we trust them? You know, there's so many entities
having trouble coordinating at the same time. And so I
do think those market structure issues kind of do matter,
because FED efficacy could be different if market structure changes
(19:29):
and becomes more fragmented. I want to get back actually
to the munique backstop that we saw in twenty twenty,
which was like a pretty novel, you know, further extending
of the power, kind of a novel policy intervention. And
one of these areas that did seem to like is
this fiscal policy is a monetary policy. It's kind of
fiscal if you're allowing fiscal authorities to spend money, you know,
(19:51):
for obvious ways. But the question I have is like,
when they're thinking about, well, where is the boundary, where's
the border between what monetary versus lending? Do they like?
And I've asked this question to others and I'm still
trying to wrap my head around it. Do they think
about where they want to go and then backfill the
legal justification, or do they look at the law and
(20:11):
then determine how far the law allows them to go? Yeah,
so I think we've seen that very somewhat by crisis.
I think in two thousand and eight, I would say
it was definitely the latter, And I actually think that's
pretty well documented at this point. Like I think if
you read like the more recent Burnet keybook for example,
I think that pretty clearly they took very seriously, very
(20:32):
seriously this idea that there were things they might have
wanted to do that well, they knew, they knew what
had to happen, right, Like I think they like they
knew it had to happen, and they were really trying
to figure out how they could accomplish that within the
confines of their own legal mandate. Got it. I think
that in twenty twenty is some combination of they knew
what they were capable of based on the two thousand
(20:53):
and eight experience, and they were kind of looking for
places that you might need to build on that given
the sort of unique circumstance that was twenty twenty. The
municipal program, though that you mentioned. I think was a
particularly interesting example because they had literally said for basically
years at that point that they were not going to
do municipal bonds. That like, so similar to what you
said about the corporate bonds, Tracy. They had been very
(21:14):
clear that this was not a market. It was like
tossing a rubicon that they didn't want to do, and
I think they explicitly said that at some point. Yeah,
Rashida to Leive asked them about it. Freshman Democrat asked
Pal about it on Hill in twenty nineteen, and he
was basically like, we don't have this power, nor do
we want this power. And then kind of, you know,
very interestingly April ninth, twenty twenty, and they they jumped
(21:36):
right into that market. You know, the municipal bond market
was in shambles when they jumped in. It was really bad.
People were really struggling to issue States and localities like
Care's Act has just passed, We're not sure if it's
enough money. States and localities really need money because the
pandemics on set, you know, there, it was a tough moment,
and so I think that it's not a surprise that
they saw the need. But it was interesting that they
(21:57):
thought they could fulfill it. Well, it definitely reminded me
at the time of the ECB's OMT program, or the
ECB said for years, we can't lend to member states,
we can't lend a member state, and then when things
are really falling apart, they're like, well we can, and
the reason we can is because of member states don't
have a borrowing capacity. Then we can't really fulfill our
(22:17):
monetary mission. So it's sort of like backfill in a
new power based on the law, just because they kind
of realized that the existing thing was untenable when the
facts changed, change my mind, or whatever that quote was.
But you know, a lot of what we're talking about
is the sort of mixing or maybe overlap between monetary
policy and fiscal and so I want to ask a
(22:39):
devil's advocate question, and I want to make very clear
that this is a devil's advocate question, But you know,
why couldn't we have a situation where if Congress is
gridlocked and politicians can't do anything, for instance, with the
debt ceiling, why couldn't we have the FED say that
it is going to support a particular thing or mandate
(23:01):
like maybe they want to finance a bunch of renewable energy,
or maybe they want to finance a lot of infrastructure
or something like that. Why would that be bad? Yeah,
so I think that there are some people who think
that that would actually be great and we should do it.
And you know, we have this amazing tool at our
capit at our disposal, and why shouldn't we use it? Basically,
and that is that is one argument. I think there's
(23:24):
another side of this story that basically says you wouldn't
want to do that because if the FED is seen
as a really part as an actor, if they're doing
things that one side of the aisle really feels strongly
shouldn't be happening, you could see a situation where a
they face a lot of backlash on the hill that
eventually results in them losing this priced independence that we've
just talked about, or you could see a situation where
(23:46):
they're just sort of less trusted as an entity. And
these are a bunch of unelected officials, right like they're
sort of mandate. Whatever legitimacy they have in our democratic
system kind of ties back to this idea that they're
honest brokers. Nonpartis and trying to be center at the aisle.
Joe's face when I was asking that question, By the way,
I could tell that you were waiting for me to
ask about the trillion dollar coin. Yeah, because you said
(24:08):
dead ceiling, and so I was like, I got real excited. Wait, wait, wait, wait,
I would just say Gina's response there. This is the
reason why I think the trillion dollar coin is actually problematic,
because it's one thing to say, like, well, I agree
with them doing it this time, but what about the
next actor that comes in? You know, you might not
necessarily agree with it. Then yeah, meant another one, but
(24:30):
all right, we're gonna actually we're gonna put a parenthetical
at this part of the conversation. At any point in
the researching of your book, did you glean any insight
into whether the FED would accept a trillion dollar platinum coin.
Did this come up at all in your research? No,
it did not. It did not, And I will say
I've spent a lot of time recently rereading all of
the old transcripts around that limit. I don't think I
(24:52):
don't think there's going to be a lot of appetite
over there, I'm sorry to tell you. And when the
alternative is blowing up the economy as we know, Sue
suddenly appetites change. But I do want to get back
to actually, I mean, I thought Tracy's Devil's advocate question
wasn't really was pretty legitimate. And you know, there is
this sort of an argument you sometimes hear from certain
(25:14):
types in DC and never totally bought into the logic.
But I'm curious your take on it, which is that
when the FED does things like these extraordinary emergency measures
in March twenty twenty or in two thousand and nine
or whatever, that it's kind of bailing out politicians, and
that the FED should say no, like, if you want
to have sound cities and states that don't have to
(25:36):
lay off all your workers, get together and pass a
law to bail out cities and states or whatever it is.
Or even you heard this in you know something just
with rate policy in them in twenty tens, where they're like, no,
Congress should be using fiscal tools, and if we keep
cutting rates, that's mostly good for the stock market and
the ridge, and it's not really great, and the FED
(25:57):
should say we're not going to just cut rates because
the Congress won't do his job and pass more pro
growth policies in your view, like, does that reverse feedback
mechanism theoretically exists where if a theoretical FED chair wanted
to say, we are not going to do X because
we want to force elected officials to do what elected
officials should do, could it play a role in preventing
(26:21):
politicians from just sort of passing on these problems to
this third party. Yeah, you know, I think it's a
really interesting question. I don't actually think that it has
a simple answer. Partially because you just talked about a
lot of different policies and sure should probably have different applications,
but also just because you know, I think that these
I think that these issues are probably pretty case by case,
(26:43):
Like we're working with different congresses, we're working with different
policy tools, and I do think that that just makes
things very messy. And I think actually one thing I
try to communicate in my book, which I think you
can do pretty nicely in a book in a way
that you can't necessarily do in a news story or
anywhere you have to be brief, is a lot of
these choices are just really different. Like sometimes there are
(27:04):
no good alternatives if you're the FED, Like what you're
doing is going to enable some bad behavior by either
a politician or a market actor. But if you don't
do it, you risk some pretty serious problems. And I
think there's no clear rubric sometimes, and I think that's
really interesting, and I actually think that's a good reason
to talk about these kinds of responses after they happen
and sort of plan for them in the future instead
(27:25):
of waiting and making all of these decisions in a crisis.
You know, I think it's I think to the extent
that you can pre plan for this stuff, it could
make it make those decisions a little bit less at
hawk when they're happening. Yeah, And it definitely feels like
it's true that having had the experience of two thousand
and eight, the FED was better prepared or at least
more willing to sort of roll out that emergency playbook
(27:48):
in twenty twenty, which was probably very helpful. Just going
back to the idea of FED independence versus sort of
like efficiency and expediency. What should guardrails on the Central
Bank's power? Actually willk like? Yeah, So I distinctly did
not take a position on this in this book, because
you know, I don't think it's my job necessarily as
(28:08):
a journalist. But I will say I think, you know,
you hear proposals from a range of experts to study
this and do have opinions on it that I think
are interesting to at least talk about. You know, there
are some people who think that there shouldn't be guardrails
and that you should actually make more ambitious use of this,
that you should think more about how to use these
policies expansively. There are some people who think that you
(28:29):
should apply more of a sort of formulaic approach to these,
like there should be some sort of trigger for when
you use market functioning QWE, for example, is one thing
I've heard as a proposal. And then there are some
people who think that there should just be more explicit coordination,
like something should trigger a moment of coordination between the
Fiscal Authority and the FED in an even more coordinated
(28:50):
way than just having a Treasury sign off. You know,
for example, if the FED is doing market functioning QWE,
the Treasury should immediately be involved in that. And so
I think those are some of the things that you'll
hear people say. I think that, like I said, I
think this all just deserves a little bit more debate
than maybe it's gotten in the wake of twenty twenty,
because these tools are so powerful that it seems likely
they're going to be used again. Well, you know, we're
(29:11):
recording this actually on a March seventh, and you know,
there was just a pull hearing on the Hill and
some of these questions. It was in front of the Senate,
and some of these questions came up from both sides,
but about like climate and the FED and how the
FED thinks about climate risk. And you have conservatives more
saying like why should the FED be anywhere in the
business of anything to do with climate, And then you
(29:33):
have others it's like, well, climate is a risk to
the economy, and there are various reasons why climate could
take part. But again I'm curiously sort of this broader
question of how much does the FED sort of even
on these very long sort of like non acute things
come essentially this like sinc where they into all these
fights end the becoming FED related because it's really hard
(29:56):
to pass anything climate related, or it's really hard to
pass anything related to sort of like a racial justice
right now, So all of these things become FED issues
because we have so little hope that Congress can do
anything about them. Yeah, and I think that they certainly
have to some degree become FED issues. We certainly talk
about sort of racial wealth quality, and we certainly talk
about sort of the climate risks and climate finance in
(30:19):
the context of the FED. I think the interesting thing,
I think you kind of alluded it to it earlier,
is that the FED can't always do so much in
these domains, and so sometimes I think there is this
risk that you have a false sense of security where
you feel like, hey, the FED is kind of on this,
and actually the tools are just poorly equipped to handle this.
(30:56):
You know. It's interesting because for all of the expanded
powers in the new error areas that they've gotten into it,
each crisis, there does seem to be a pretty deep conservatism,
and I don't mean it in the right right left
sense of just a sort of institutional conservatism about just
going back to like the dual mandate, like two percent
(31:16):
inflation seems pretty sack or sanct They post twenty ten
like in this sort of six and a half unemployment.
Is that full employment? Like six and a half percent
unemployments pretty high. But you know, some early inclinations that
maybe that would be enough. Why is that aspect of
the FED. You know, Janet yell And who I think
many would consider it to be a sort of devish
(31:38):
policy maker, never seemed to be particularly comfortable with the
idea of like letting it run hot at that time.
Why is that aspect one area in which you don't
see a particularly like a lot of like a creativity
about Yeah, So on the inflation side of things, I
think that we probably were headed in the direction of
(31:58):
a little bit more creative VI before this episode. Actually,
you know, they didn't sort of change their inflation target
in the sense that they made it. They gave it
a look back period, they made it an average over time.
I think we're getting like pretty close to that with
just like actually nudging it up a bit, But we
didn't get there. They certainly didn't do that. But I
do think that there was sort of like, you know,
(32:19):
not a thousand flowers were blooming, but a few more
flowers were blooming when it came to the inflation target.
On the employment side of things, I would say that
they are conservative in the sense that they still think
about the world through a sort of very Phillip's curve framework.
Meaning that there's some trade off between employment and inflation.
But I think that they've become a lot more modest
(32:39):
about their ability to understand that Philip's curve. And it's
difficult to say they hear because we're talking about like
nineteen policymakers, and this applies to each of them a
little bit differently. Some of them are still pretty devoted
adherence to the idea that they can specify some sort
of natural rate of unemployment. But I think a lot
of them, and including the chair importantly right now, has
(33:02):
have become a lot more skeptical about the idea that
you can credibly predict how low unemployment can go without
causing inflation at any given moment, And so I do
think some of that conservativism has actually waned with time.
This episode obviously throws a big rention for that, right.
I mean, you do get the sense from policymakers now
they are more open about saying like, well, maybe there
is something particularly about inflation that we are missing here,
(33:25):
and I think we've had one or two people on
the show who've talked openly about that. But this actually
leads into something else I want to ask you, which
is with that realization that perhaps there's something about the
Phillips curve that's changed or that we don't fully understand
as policymakers. And also with the evolution of the fed's
role in the financial system and markets. How do FED
(33:49):
officials themselves feel about this? Presumably you talk to current
and former ones. How do they explain it and how
do they talk about it? Yes, so I think a
lot of times when you talk to FED officials about this,
you will hear some amount of concern actually that if
you ask the FED to do too much, it won't
be able to do anything well. So I do think
(34:11):
that that is a thing that they're very attuned too,
and that's I mean, it's not a huge surprise. I
think they kind of gave us some hints of that
and sort of that twenty fifteen hiking cycle that you
were previously talking about when Congress just wasn't passing anything
to help the economy along, and you know, you would
hear FED officials occasionally say that out loud. But I
think after twenty twenty, I think there was still some
feeling that you just don't want to push too much
(34:31):
on the FED. Not everything should be the Fed's job.
I do think when it comes to sort of the
framework and the how do you think about the economy
in this brand new world, I think the you know,
the jury is just not out yet. They're they're still
trying to figure out what went wrong in twenty twenty
and twenty twenty one, and they're still trying to figure
out what's what's going wrong now because they don't seem
to be getting this inflation under control as quickly as
(34:53):
they had expected to. I think so, I think it's
just a situation in flux. How much of the rapid
movement and it was like basically day after day in
early twenty twenty, their ability to roll out these new programs.
How much easier was that because of scaffolding basically that
was built in two thousand and eight and two thousand
and nine, And how much specifically the work of like
(35:14):
Brunankee work with Geitner, et cetera, enabled Powell and Manuchin
together to move as fast as they did. So I
think that there I'm actually gonna give a two part
answer to Okay, Part one is definitely the scaffold. Scaffolding
mattered a lot a They kind of had a pattern
for how this could work, and B they had some
ability to not make the mistakes that happened in two
(35:35):
thousand and eight, Like, for example, they kept better track
of these programs and were very transparent about them. They
told us what they were buying, not at a five
year leg but just immediately. And B they got congressional
backstop for every single one of the programs that mattered.
Like it wasn't like what I described earlier in two
thousand and eight when they used private sector money to
set up the TAF And I think the reason they
did that is because they thought that there was some
(35:56):
sort of democratic legitimacy to having that sort of you know, buy,
and also it's easier. It was like an easier setup.
But I do think the democratical legitimacy part mattered there,
and so I think we learned a lot of lessons
from two thousand and eight. Part B, though, I would say,
is while they learned a lot of lessons in the
scaffolding mattered, they had to set up a bunch of
(36:16):
new programs that they had never seen, never tried before,
municipal main street lending, etc. Etc. And I also think
that they had really not been anticipating that they were
ever going to have to use the two thousand and
eight programs again, for example money market mutual fund program
that took ton of effort, a lot of late nights,
a lot of huge scrambling to get set up because
(36:36):
they just money markets had changed so much in the
interroom and they hadn't really like been keeping up with it.
Like there was no design ready to roll off the
counter for this program, and so it did require a
lot of last minute sort of legal legal you know, finessing.
You know, looking forward. Obviously there's always people complaining about
the FED from everyone. Go that's not new years ago.
(36:58):
You know, you've had this sort of like abolish the
FED types, audit the FED types, various attacks on it
from different angles. But it more or less like seems
to operate and buy and large. I get impression that
politicians have other things to worry about that or you know,
the play better on TV than like, you know, the
arrangement of monetary policy. Do you perceive any change to
(37:21):
the trajectory of the FED either your institutional setup. I mean,
it seems like this sustained period of high inflation maybe
not great for the FED standing within politics within DC,
but do you see any like real threats or on
the horizon to the sort of modus operanda of monetary
(37:41):
policy in this country. Yeah, so I think actually A,
I think the sort of little c conservativism that you
were talking about earlier helps them a little bit in
this regard. I think when you're like boring, when you
just bore people to death, it makes them less likely
that they are going to come and meddle with your
Federal Reserve Act. So I think that's useful. I do,
and I talk about this a bit in the book.
I do think that there are a couple of things
(38:03):
we should pay attention to here, though. One of them
is I just think that the elected government has become
so much more aware of what the FED is capable
of and what it can do with some of its powers,
both the emergency lending powers and just bond buying, which
has become much more passe than it used to be.
And I think that you have to keep an eye
on what kind of appointments are being made to the
(38:24):
Fed's board in Washington. The board is so powerful, The
board does so much of what the FED does, and
it's presidentially appointed people, and it turns over relatively quickly.
They're very long terms, but people don't typically stay in
them for the long terms, and so you often have
a situation where it's relatively politically lined up in one direction,
and it's got all these powers can potentially have a
(38:46):
partisan lean, And I just think that given how much
power this institution has, that's something to be very aware of.
And I think it's something to make sure elected officials
are focused on appointing nonpartisans to the degree possible and
feasible in a very partisan world. It is interesting talking
about like the conservatism. Even the presidents of both parties
seemed to be conservative in their picks, Like other than
(39:09):
Trump's failed nomination of Judy Shelton, most of his names
were like pretty conventional, okay, But I think you just can't.
I feel like this is a thing that often happens
in the media and we just pretend like the Judy
Shelton nomination didn't happen and didn't almost get confirmed right,
like I think because there was there were some really
interestings there where they were like just scrapped immediately, like
(39:33):
Steve Moore was not going to realistically get this job.
I mean, I think it's highly likely at some point
the culture wars come to the FED. Yeah, And I
mean you've seen it with the ESG space and investing
like it. To me, it's just a matter of time.
And the way they came for the Supreme Court, you know,
I think we're in a place with the FED that
you I think the Supreme Court is the right analogy
(39:54):
to years. You know, it used to be treated in
a very different way, not by any sort of legal
require ronment, just because that's the way we thought about
the Court. And we're at that stage now where we
treat the FED a certain way, not because of any
legal requirement, just because that's how we think about the FED.
And I think it's just a thing to be aware of.
You wouldn't want this power to go partisan, because they
go partisan in both ways. Can I just exactly my point? Yes,
(40:17):
I totally. Can I just say, we have these monitors
in the studio of like different TV networks and I
just saw Larry Cudlow in one of the screens and
I thought about, like FED Governor Larry Pudlow one day,
No against Larry, but you know it's like future like
I don't know, probably not at this point, but it
is sort of funny to think about. That's like most
of the names other than Shelton that have ever been nominated,
(40:39):
you don't associate too strongly with like one party. But
but you know, the other time, Joe, the other screen
is to Santis touts culture war priorities in Florida's speech,
So you know, there you go. It's a it's a
sign of what's coming, solely a matter of time. Gena Smilok,
thank you so much. Congrats on the book, and really
appreciate you coming on, Odlum, thank you having me, Tracy.
(41:15):
I really enjoyed that conversation. I thought that last point
in particular, that like what we've seen with the Supreme Court,
because like obviously, like you know, presidents have always applyned
more liberal or conservatives, but also like now you don't
expect to get any votes from the other party for
your nomination, etc. Like we haven't quite seen that it
happened with the figuet, but it's almost like, how is
(41:37):
it going to avoid It seems highly unlikely to me
that this like very powerful group of technocrats is somehow
going to be immune to the intense politicization that we've
seen of literally everything else in the past few years.
So that's point one. But I also thought Gina made
a really good point about you know, there is all
this criticism of the FED, often for just defied reasons,
(42:01):
and to some extent, it has been accumulating all these
new powers and abilities that it hasn't been explicitly designated
to have, at least by voters. But also sometimes it's
making the tough choices and sometimes there aren't great outcomes. Yep, no,
and just as ideal, Like I keep thinking of it
as like it's independent in the sense that, okay, it's
(42:23):
supposed to be sort of immune from partisan politics and
make hard decisions and do the tough thing, and that's
an element. But then there's also these sort of like
operational independent one entity in DC that does not have
to like, you know, always go for a vote or
come to for reelection or whatever. And as it gets
harder and harder to pass anything in DC, and I
(42:44):
don't think many people expect that trajectory to change, then
everyone's like, oh, you guys, you guys don't have to
worry about the politics that we do. So you're totally right.
And I think when you use I think you were
as you use the word sink, right, it's like a
sink for things that can't get done in Washington, and
that that is true, and it has been helpful at times.
But the more it does that, I think, the more
(43:05):
attention it's going to garner, and the more it becomes
a target totally, and the more partisan it will become,
and the more people will be really focused on. Okay,
but what is your stands on the Fed's role in
funding climate ceter like? These kinds of things, they'll inevitably
get more heightened and then you'll have more of those
fifty one and forty nine nomination votes and things like that. Yeah,
(43:26):
on that happy note, shall we leave it there? Let's
leave it there. Okay. This has been another episode of
the Old Thoughts podcast. I'm Tracy Alloway. You can follow
me on Twitter at Tracy Alloway and I'm Joe Why
Isn't Thal? You can follow me on Twitter at the Stalwart.
Follow Gina on Twitter Gina Smileock. She's at Gina Smilek,
and check out her new book, Limitless. The Federal Reserve
(43:46):
takes on a new age of crisis. Follow our producers
Carmen Rodriguez at rman Armin and Dash Bennett at Dashbot.
And check out all of our podcasts Bloomberg under the
handle at podcasts and from or odd Lots content. Go
to Bloomberg dot com slash odd Lots, where we post transcripts,
Tracing I blog, and we have a newsletter that comes
(44:07):
out every Friday. Go there and sign up. Thanks for listening.
Hello, and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, do you
remember like after the Great Financial Crisis and the FED
couldn't get the unemployment rate down even with all the
raid cuts, and people were talking about like monetary policy
is pushing on a string in this environment. You remember
hearing that termola? You know what I remember? I remember
(00:32):
people complaining about below target inflation for many, many, many
years and how the FED we couldn't figure out why
the FED wasn't able to push up prices, and now
fast forward to you know, twenty twenty three, we can't
figure out why the FED can't bring inflation under control.
I don't want to insult like the various like brilliant
(00:52):
economists and pundits out there. I never would, but I
always found the complaints about like too low inflation to
just be like hilarious, as if that is, as if
there was ever like a real problem that anyone in
the world faced. But I do think it's interesting, like
you know, this pushing on a string narrative, everyone's sort
of assumed that, Okay, maybe it's hard for the FED
(01:12):
to get unemployment down, but that if inflation were to accelerate, well,
at least we know how to deal with that. Yeah.
But at the same time, there was this weird sort
of discrepancy or tension because the FED couldn't figure out
how to push down employment or push up prices at
that time, but it seemed to do a reasonably good
(01:34):
job of like intervening in markets. Yeah, and this was
this was the chorus that you heard for so many years,
the FED is coming in and distorting the markets, which
you know, tacitly admits that they do have an impact there. Yeah.
I think that's sort of like one thing that everyone
agrees on, especially in the wake of you know, the
(01:56):
the massive spasms in March twenty twenty, and then of
course also in the wake of the Great Financial Crisis.
The FED is pretty good at stopping financial crisis when
there's a run on some sort of bank if it
so chooses that. Like, maybe the FED can't get inflation
at target when it plans, maybe it can't get employment
at maximum employment, but it can definitely stop bank runs. Well,
(02:17):
the other thing I would say, and we should stop
talking soon because our guests, Yeah, we could keep going forever.
But I think people forget how much things have changed
in the span of let's see, like fourteen or fifteen years,
because I remember, you know, I remember writing about the
corporate bond market and it was like, ooh, maybe one
(02:38):
day the FED will have to come in and bail
out the corporate bomb market, and that was the worst
thing that could happen. That was like, I got so
much pushback on that, and then lo and behold, twenty
twenty two happens, and the FED comes in and rescues
not only the corporate bomb market, but treasuries, munies, pretty
much everything, and it's sort of an accepted state of
(02:59):
as now right. And of course this is one of
the things we talked about in a recent episode, our
live episode with a love Menend and Josh Younger. Anyway,
let's get right to it. Let's talk more about how
the FED has taken on these new powers, these new responsibilities,
what it can do, what it can't do. We're going
to be speaking with Gina Smilet, fed reporter at the
(03:19):
New York Times, also a former Bloomberger, a former colleague
of US, and the author of the new book Limitless.
The Federal Reserve takes on a new age of crisis,
which I see is number one and the Amazon money
and monetary policy. Ken, Gina, thank you so much for
coming on Oblots. Yeah, thank you for having me. Congratulations
on the new book. You know, I'm curious about the
(03:42):
title because limitless and obviously we talked about like, okay,
these new powers that the FED has taken on both
in the wake of the Great Financial Crisis and also
the COVID shock, and yet there there does seem to
be a limit on its actual dual mandate, as in,
doesn't even have the tools to do like the two
things max employment and stable prices that we think of
(04:03):
as being the Fed's core mission. Yeah, so I think
they're actually fairly interrelated. So the title itself actually comes
from something Chair Jerome Powell said during sort of the
depths of the twenty twenty pandemic upheaval. You know, he
was doing an interview with David Wessel at the Brookings Institution,
and David asked him, you know, is there a limit
to how much the FED can do to sort of
(04:26):
save all of these markets that are crashing. I'm paraphrasing,
but that visual gist of it, and he said effectively,
you know, no, there's no limit we can do, you know,
as much of this as we need to within the
confines of the law. And so that's that's where the
title draws from. And I do think that's relatively accurate,
you know, in the sense that these emergency powers that
they used to save markets, like Tracy was just alluding to,
(04:47):
very broad, very comprehensive, can be stretched in a lot
of ways, and that's a lot of what I talk
about in the book. But then at the same time,
you know, when you're busily stretching those in all the
ways that you're stretching them, it doesn't necessarily of guarantee
a smooth on ramp back to solid growth and stable
inflation when we get to the other side of a crisis.
(05:08):
Maybe just to go back in time a little bit,
and this is one of the themes that emerged from
our conversations with Josh Younger and love Men and but
this idea that the Fed's mandate and its role has
really changed over time. Can you talk to us about,
you know, what was the original conception of the FED
versus what it is today. Yes, So I spend a
(05:30):
huge amount of time on this in the book because
I think it's just so interesting, and I think the
upshot is basically, the FED as it is today is
not the FED as it was originally envisaged in nineteen
thirteen when it was set up in basically anyway, nineteen thirteen,
FED was set up to be a really limited institution
that was basically going to come in and prevent runs
(05:51):
on the bank, which were very frequent characteristic of society.
In that time. We had just had a bunch of
big financial crises, including a very painful one in nineteen
oh seven that cost a very bad recession, and so
that was sort of the idea is we need some
sort of institution that can both sort of make money
more organized and make sure that it's not getting stuck
in Tallahassee when you need it in somewhere in the
(06:13):
middle of Kentucky. And we need an institution that can
make sure there's sort of a lender of last resort,
somebody who can back up markets in times of crisis.
So those emergency powers always kind of they're very limited
at the outset. The monetary policy powers really not there
at the outset, because we were if you recall back,
you know, we're on the gold standard that sort of
had some sort of self breaking mechanism. We regularly drop
(06:34):
the gold standard. So, I mean it was not some
cure all solution for inflation, but just the way we
thought about inflation and society very different at the time,
and the FED didn't have such a developed role in
sort of regulating the speed of the economy back then.
FED independence is a term that you hear a lot,
and I feel like it has different definitions and different contexts.
(06:56):
But can you talk about, like where did this term
come from and what did it mean? Like, what is
this idea? What was the purpose of it? What do
people mean? And where did it? Yeah? Where did it
originate from? Yeah? So we need to do a little
bit more history right here. So you get up through
the nineteen thirties and the FED has really kind of
figured out how to actually do some macroeconomic management. They
(07:17):
sort of figure out that if you buy and sell bonds,
it can guide interest rates into place you can either
speed up the economy and slow times or slow it
down when you need to. And up into the nineteen fifties,
the FED really starts to take on sort of this
inflation management job and what we see in the nineteen
fifties is the Truman administration is really leaning on the
Federal Reserve to keep interest rates very low, to try
(07:40):
and sort of buy bonds, use it its ability to
print money effectively to help sort of fund war efforts,
fund you know, the fiscal fiscal policies that they want
to do. And the FED is very concerned about inflation,
and so we see this real rebellion at the FED
where they work very hard to wrestle their wrestle control
over their policies. Back. Mariner Eccles, who's one of the
(08:02):
sort of important pivotal figures in early FED history, actually
ends up releasing an account of a very sort of
thans meeting between the Truman administration and the FOMC to
the press. It embarrasses the administration. The administration decides to
come to some sort of agreement with the Fed, and
we get this nineteen fifty one Fed Treasury Accord, which
really hands the FED a lot of independence over monetary policy,
(08:25):
a lot of ability to not necessarily set the targets itself.
You know, it still has to aim for maximum employment
and stable inflation, as Congress eventually defines, but it does
get to decide how it's going to go about those jobs,
completely independent of the partisan process. So it's funny you're
talking about this because I wrote about it and we
talked a lot about it with Josh Younger on that
(08:47):
episode about the origins of the shadow banking system and
sort of the modern financial system as well. But just
to back up slightly, when we talk about central bank
independence nowadays, we generally talk about it as a good thing,
and it's often considered a hallmark of a developed economy
versus say, in an emerging market with perhaps more institutional weakness,
(09:10):
where the central bank might be pressured to do whatever
the government wants. Why is it desirable to have an
independent FED that is perhaps a little bit more free
from the types of political considerations that you would see
in electric politicians. Yeah, I think a huge part of
the reason we treat it as sort of the gospel
(09:31):
that it is that FED independence should be protected at
all costs traces back to the nineteen seventies. So in
the nineteen seventies we had an inflation situation not hugely
unlike the one today, originally caused by some supply issues,
some excess demand issues tied to war efforts, and it
just lasted for years and years, and the FED would
(09:52):
occasionally raise rates to try and bring it back under control,
but then when unemployment went up, they would quickly lower
the rates again, and they just never got a handle
on it. Historians economic historians think that part of the
reason for that is Burned then the FED chair was
really caving to the Nixon administration. Nixon was very nervous
about reelection. He wanted rates to stay low. Low rates
(10:13):
translates to low unemployment, and so that was sort of
the conceit. And it's pretty clear from tapes that were
released after the fact that Burns, a huge Nixon loyalist,
did in fact take that into consideration when setting monetary policy.
And so the idea is, you just don't want to
have these short term political considerations in place when you're
doing something as important and potentially painful as fighting inflation,
(10:34):
because it puts away your decision making in a way
that allows inflation to become sort of entrenched in the economy.
And we really saw in that episode that it was
very difficult to get inflation out once it had been
so ingrained in economy. There was what people now refer
to as this inflationary psychology that got just sort of
really dug in and took a big recession to wipe out.
(11:12):
Let me sort of like zoom up a bit towards
the present day, and I'm we're happy to go back
into the history because I think that's interesting. But one
dynamic that feels real, and tell me if I'm wrong,
is that one nice thing about the FED is that
it can sort of just move, and that there is like,
I think people have very low expectations for what Congress
(11:33):
can do on anything these days. It's sort of like
every once in a while you get a window where
one party controls the White House and both Houses of Congress,
and then they have a limited political capital to spend,
whereas in theory, the FED can just move very fast,
and we saw that in the middle of March twenty twenty,
for example. How much of the sort of accumulation of
(11:54):
powers that the FED has, particularly over the last fifteen
years during a period of like deep partisan division, is
simply a function of well, it's one institution in DC
that is not riven by partisan gridlock. Yeah, So I
think this is sort of the central conceit of my
book is we've built up all these powers over a
time basically because they always made sense in the moment,
(12:16):
and now we're using them all simultaneously because of the
situation in Washington, and so I think, you know, everything
we've talked about so far, so nineteen thirteen we're set
up to guard against banking crises. Nineteen thirties, we really
deepen those powers to guard against banking crises because that's
the problem of the day. Nineteen fifties, the problem of
the day is increasingly inflation. Nineteen seventies, that is the
big problem. And so you have sort of these like
(12:38):
ebbs and flows where everybody's focused, everyone at the fedest
focused on banking crises, then everyone at the fetist focused
on inflation. Suddenly we get to the modern era and
everything is suddenly the FEDE job. You know, we're very
concerned with sort of the monetary policy management portion here,
but we're also using them pretty aggressively to fend off
financial crises and moments of financial crises. And I think
a lot of the reason for that is because some
(12:59):
of the things that they can do in moments of
financial crisis are a lot easier than coming to some
sort of agreement on Capitol Hill on either a bank
regulation that might preempt some of those financial problems, or
be some sort of bailout for the institutions that are
a problem. So it's a small miracle whenever Congress manages
to pass a law and yet the Fed can announce
(13:21):
like a trillion dollar program. It seems almost overnight. Why
is that. Talk to us a little bit more about
the process and what limitations, if any, there actually are.
I guess the clue is in the name of your
book limitless. But if there are limitations or constraints in
what the FED can do, Yeah, so there are some limitations,
but I think that they're actually often exaggerated, even by
(13:43):
the experts who know a lot about this. So in
moments of extreme crisis, the FED basically has to get
a declaration that we are in an unusual and exigent circumstance,
and it then has to get sign off from the
Treasury Secretary in order to set up an emergency lending
facility to help in organization or entity. The facility has
to be broad based, which lawyers generally mean think means
(14:05):
about five institutions would have to be able to tap
it and the FED has to be secured to its satisfaction,
which means that it can't expect to lose money depending
on whatever it's defining as its satisfaction. Most lawyers at
the FED will tell you that this means they can't
lose money. Lawyers outside the FED will say, that's kind
of dicey. We're not actually sure that that's true. I
mean that has always seemed to be really fluid, because
(14:28):
I remember post two thousand and eight, when the FED
was doing one of its bond buying programs. Oh, it
was buying mortgage backed securities mbs, and it said it
was only buying investment grade mbs. And I remember looking
up each individual q set for like a week and
seeing that some of it wasn't investment grade when the
FED bought it. But it didn't seem that concerned with
(14:51):
that aspect of the program. Yeah, that's and that was
actually technically quey. But I think the same basic rules
supply with these emergency lending facilities. They really are pretty broad, though.
There's so I think I'm really interesting. The example here
that comes up a lot is there is this one
program within the nerdiest name of all time. I think
because nobody wants to talk about it, but it's the
term asset loan facility, and basically what it does is
(15:12):
it buys like it takes honest collateral bundle towns. I
remember TAP, yeah, yeah, And so we used it twice.
We used it in two thousand and eight. We used
it again in twenty twenty. The two thousand and eight
version was collateralized by the private sector. The FED didn't
have any government money backing that up. And that's always
sort of the idea is that, oh, well, there's some
constraints in here because Congress has to appropriate some money
(15:33):
to back up these facilities. That's clearly not technically true
based on the way we've actually done this in the past,
And so I think there are fewer limits then maybe
we appreciate. But the one thing that does seem to
be a real limit is the FED doesn't really have
a way of just like giving household buying power, which
of course was a really powerful aspect. It would seem
(15:54):
of the V shaped recovery we saw it coming out
of twenty twenty. It was a probable a big aspect
of the very slow recovery we saw out of two
thousand and nine, the very modest fiscal stimulas, especially in retrospect,
not even a trillion from the Obama administration. And it
feels like a lot of the frustration that people have
towards the FIT is that it does, on some sense
(16:16):
seem to be limitless designing these new programs, but actually
the one thing that might actually move the dial big
time or meaningfully from a macro perspective, give people money.
That's still like the one thing they don't really have
any way of doing right, lending not spending. It is
sort of the phrase Jo repeats at nauseam. They can lend,
they cannot spend. You can do lending in ways that
(16:36):
look a little bit like spending, you know. I think
we saw some push to do that during the depths
of twenty twenty, like there were some ideas about making
loans to municipalities really long termed and really low rate,
and we didn't actually see them take up that up
too much. I think they still very much see themselves
as backstop entities who shouldn't be used in that way
(16:57):
because it's just too close to fiscal policy. But again,
I think that's more of a personnel choice that's being
made versus something that is necessarily legally extremely required, which
I think is an interesting thing to talk about. And
I think that, you know, the interesting thing to watch
is how are these programs used in the future. You know,
will they continue to see them as this backstop? Do
(17:18):
they think this fiscal separation is very important? So just
on that topic, I mean, one of the things that
you will sometimes hear people in markets talk about is
this idea of the FED getting bang for its book.
And I guess it was most salient maybe with the
corporate bond buying program, where they announced, you know, we
could spend this much buying up corporate bonds to stabilize
(17:40):
the market. But in practice, I think I can't even
remember the exact number. You might know it, but it
was a fraction of the announced amount that they could do.
And just by virtue of saying that they were going
to backstop the market, they brought in credit spreads very,
very dramatically. Is that always going to be the case
(18:01):
or is there a possibility that as the FED takes
on more and more responsibilities and if it maybe has
to use these things over and over again, that sort
of firepowers starts to dissipate. I think This is such
an interesting question, and I do not pretend to be
enough of an expert at market it's to have a
great answer to it. But I've talked to a lot
of people about this, and I think you actually get
(18:22):
a range of opinions. There are some people who say,
you know, they're such a credible lender of last resort
that this is basically going to stay this way, that
you know, we people it'll work forever. Yeah, people believe them.
I think other people will sometimes point you towards some
of the treasury market dysfunction that we saw really early
in the crisis, where it didn't seem like people were
being completely reassured. And I actually think that's an interesting
(18:46):
distinction because I think that speaks to sort of market fragmentation,
you know, it just to sort of rewind the tape here,
back in twenty twenty, people were dumping treasuries. It wasn't
like one or two entities, and they weren't necessarily all
US based dumping treasuries. It was everybody. It was hedge
funds who had basis trades on, it was a lot
of international holders. A lot of the selling was coming
(19:07):
out of like the Cayman islands, and so I think
there was this real sort of signal problem where the
FED might be stepping up. You might be pretty familiar
with what the Fed's doing, but there was this idea like,
you know, how aggressively are they going to do this?
Can we trust them? You know, there's so many entities
having trouble coordinating at the same time. And so I
do think those market structure issues kind of do matter,
because FED efficacy could be different if market structure changes
(19:29):
and becomes more fragmented. I want to get back actually
to the munique backstop that we saw in twenty twenty,
which was like a pretty novel, you know, further extending
of the power, kind of a novel policy intervention. And
one of these areas that did seem to like is
this fiscal policy is a monetary policy. It's kind of
fiscal if you're allowing fiscal authorities to spend money, you know,
(19:51):
for obvious ways. But the question I have is like,
when they're thinking about, well, where is the boundary, where's
the border between what monetary versus lending? Do they like?
And I've asked this question to others and I'm still
trying to wrap my head around it. Do they think
about where they want to go and then backfill the
legal justification, or do they look at the law and
(20:11):
then determine how far the law allows them to go? Yeah,
so I think we've seen that very somewhat by crisis.
I think in two thousand and eight, I would say
it was definitely the latter, And I actually think that's
pretty well documented at this point. Like I think if
you read like the more recent Burnet keybook for example,
I think that pretty clearly they took very seriously, very
(20:32):
seriously this idea that there were things they might have
wanted to do that well, they knew, they knew what
had to happen, right, Like I think they like they
knew it had to happen, and they were really trying
to figure out how they could accomplish that within the
confines of their own legal mandate. Got it. I think
that in twenty twenty is some combination of they knew
what they were capable of based on the two thousand
(20:53):
and eight experience, and they were kind of looking for
places that you might need to build on that given
the sort of unique circumstance that was twenty twenty. The
municipal program, though that you mentioned. I think was a
particularly interesting example because they had literally said for basically
years at that point that they were not going to
do municipal bonds. That like, so similar to what you
said about the corporate bonds, Tracy. They had been very
(21:14):
clear that this was not a market. It was like
tossing a rubicon that they didn't want to do, and
I think they explicitly said that at some point. Yeah,
Rashida to Leive asked them about it. Freshman Democrat asked
Pal about it on Hill in twenty nineteen, and he
was basically like, we don't have this power, nor do
we want this power. And then kind of, you know,
very interestingly April ninth, twenty twenty, and they they jumped
(21:36):
right into that market. You know, the municipal bond market
was in shambles when they jumped in. It was really bad.
People were really struggling to issue States and localities like
Care's Act has just passed, We're not sure if it's
enough money. States and localities really need money because the
pandemics on set, you know, there, it was a tough moment,
and so I think that it's not a surprise that
they saw the need. But it was interesting that they
(21:57):
thought they could fulfill it. Well, it definitely reminded me
at the time of the ECB's OMT program, or the
ECB said for years, we can't lend to member states,
we can't lend a member state, and then when things
are really falling apart, they're like, well we can, and
the reason we can is because of member states don't
have a borrowing capacity. Then we can't really fulfill our
(22:17):
monetary mission. So it's sort of like backfill in a
new power based on the law, just because they kind
of realized that the existing thing was untenable when the
facts changed, change my mind, or whatever that quote was.
But you know, a lot of what we're talking about
is the sort of mixing or maybe overlap between monetary
policy and fiscal and so I want to ask a
(22:39):
devil's advocate question, and I want to make very clear
that this is a devil's advocate question, But you know,
why couldn't we have a situation where if Congress is
gridlocked and politicians can't do anything, for instance, with the
debt ceiling, why couldn't we have the FED say that
it is going to support a particular thing or mandate
(23:01):
like maybe they want to finance a bunch of renewable energy,
or maybe they want to finance a lot of infrastructure
or something like that. Why would that be bad? Yeah,
so I think that there are some people who think
that that would actually be great and we should do it.
And you know, we have this amazing tool at our
capit at our disposal, and why shouldn't we use it? Basically,
and that is that is one argument. I think there's
(23:24):
another side of this story that basically says you wouldn't
want to do that because if the FED is seen
as a really part as an actor, if they're doing
things that one side of the aisle really feels strongly
shouldn't be happening, you could see a situation where a
they face a lot of backlash on the hill that
eventually results in them losing this priced independence that we've
just talked about, or you could see a situation where
(23:46):
they're just sort of less trusted as an entity. And
these are a bunch of unelected officials, right like they're
sort of mandate. Whatever legitimacy they have in our democratic
system kind of ties back to this idea that they're
honest brokers. Nonpartis and trying to be center at the aisle.
Joe's face when I was asking that question, By the way,
I could tell that you were waiting for me to
ask about the trillion dollar coin. Yeah, because you said
(24:08):
dead ceiling, and so I was like, I got real excited. Wait, wait, wait, wait,
I would just say Gina's response there. This is the
reason why I think the trillion dollar coin is actually problematic,
because it's one thing to say, like, well, I agree
with them doing it this time, but what about the
next actor that comes in? You know, you might not
necessarily agree with it. Then yeah, meant another one, but
(24:30):
all right, we're gonna actually we're gonna put a parenthetical
at this part of the conversation. At any point in
the researching of your book, did you glean any insight
into whether the FED would accept a trillion dollar platinum coin.
Did this come up at all in your research? No,
it did not. It did not, And I will say
I've spent a lot of time recently rereading all of
the old transcripts around that limit. I don't think I
(24:52):
don't think there's going to be a lot of appetite
over there, I'm sorry to tell you. And when the
alternative is blowing up the economy as we know, Sue
suddenly appetites change. But I do want to get back
to actually, I mean, I thought Tracy's Devil's advocate question
wasn't really was pretty legitimate. And you know, there is
this sort of an argument you sometimes hear from certain
(25:14):
types in DC and never totally bought into the logic.
But I'm curious your take on it, which is that
when the FED does things like these extraordinary emergency measures
in March twenty twenty or in two thousand and nine
or whatever, that it's kind of bailing out politicians, and
that the FED should say no, like, if you want
to have sound cities and states that don't have to
(25:36):
lay off all your workers, get together and pass a
law to bail out cities and states or whatever it is.
Or even you heard this in you know something just
with rate policy in them in twenty tens, where they're like, no,
Congress should be using fiscal tools, and if we keep
cutting rates, that's mostly good for the stock market and
the ridge, and it's not really great, and the FED
(25:57):
should say we're not going to just cut rates because
the Congress won't do his job and pass more pro
growth policies in your view, like, does that reverse feedback
mechanism theoretically exists where if a theoretical FED chair wanted
to say, we are not going to do X because
we want to force elected officials to do what elected
officials should do, could it play a role in preventing
(26:21):
politicians from just sort of passing on these problems to
this third party. Yeah, you know, I think it's a
really interesting question. I don't actually think that it has
a simple answer. Partially because you just talked about a
lot of different policies and sure should probably have different applications,
but also just because you know, I think that these
I think that these issues are probably pretty case by case,
(26:43):
Like we're working with different congresses, we're working with different
policy tools, and I do think that that just makes
things very messy. And I think actually one thing I
try to communicate in my book, which I think you
can do pretty nicely in a book in a way
that you can't necessarily do in a news story or
anywhere you have to be brief, is a lot of
these choices are just really different. Like sometimes there are
(27:04):
no good alternatives if you're the FED, Like what you're
doing is going to enable some bad behavior by either
a politician or a market actor. But if you don't
do it, you risk some pretty serious problems. And I
think there's no clear rubric sometimes, and I think that's
really interesting, and I actually think that's a good reason
to talk about these kinds of responses after they happen
and sort of plan for them in the future instead
(27:25):
of waiting and making all of these decisions in a crisis.
You know, I think it's I think to the extent
that you can pre plan for this stuff, it could
make it make those decisions a little bit less at
hawk when they're happening. Yeah, And it definitely feels like
it's true that having had the experience of two thousand
and eight, the FED was better prepared or at least
more willing to sort of roll out that emergency playbook
(27:48):
in twenty twenty, which was probably very helpful. Just going
back to the idea of FED independence versus sort of
like efficiency and expediency. What should guardrails on the Central
Bank's power? Actually willk like? Yeah, So I distinctly did
not take a position on this in this book, because
you know, I don't think it's my job necessarily as
(28:08):
a journalist. But I will say I think, you know,
you hear proposals from a range of experts to study
this and do have opinions on it that I think
are interesting to at least talk about. You know, there
are some people who think that there shouldn't be guardrails
and that you should actually make more ambitious use of this,
that you should think more about how to use these
policies expansively. There are some people who think that you
(28:29):
should apply more of a sort of formulaic approach to these,
like there should be some sort of trigger for when
you use market functioning QWE, for example, is one thing
I've heard as a proposal. And then there are some
people who think that there should just be more explicit coordination,
like something should trigger a moment of coordination between the
Fiscal Authority and the FED in an even more coordinated
(28:50):
way than just having a Treasury sign off. You know,
for example, if the FED is doing market functioning QWE,
the Treasury should immediately be involved in that. And so
I think those are some of the things that you'll
hear people say. I think that, like I said, I
think this all just deserves a little bit more debate
than maybe it's gotten in the wake of twenty twenty,
because these tools are so powerful that it seems likely
they're going to be used again. Well, you know, we're
(29:11):
recording this actually on a March seventh, and you know,
there was just a pull hearing on the Hill and
some of these questions. It was in front of the Senate,
and some of these questions came up from both sides,
but about like climate and the FED and how the
FED thinks about climate risk. And you have conservatives more
saying like why should the FED be anywhere in the
business of anything to do with climate, And then you
(29:33):
have others it's like, well, climate is a risk to
the economy, and there are various reasons why climate could
take part. But again I'm curiously sort of this broader
question of how much does the FED sort of even
on these very long sort of like non acute things
come essentially this like sinc where they into all these
fights end the becoming FED related because it's really hard
(29:56):
to pass anything climate related, or it's really hard to
pass anything related to sort of like a racial justice
right now, So all of these things become FED issues
because we have so little hope that Congress can do
anything about them. Yeah, and I think that they certainly
have to some degree become FED issues. We certainly talk
about sort of racial wealth quality, and we certainly talk
about sort of the climate risks and climate finance in
(30:19):
the context of the FED. I think the interesting thing,
I think you kind of alluded it to it earlier,
is that the FED can't always do so much in
these domains, and so sometimes I think there is this
risk that you have a false sense of security where
you feel like, hey, the FED is kind of on this,
and actually the tools are just poorly equipped to handle this.
(30:56):
You know. It's interesting because for all of the expanded
powers in the new error areas that they've gotten into it,
each crisis, there does seem to be a pretty deep conservatism,
and I don't mean it in the right right left
sense of just a sort of institutional conservatism about just
going back to like the dual mandate, like two percent
(31:16):
inflation seems pretty sack or sanct They post twenty ten
like in this sort of six and a half unemployment.
Is that full employment? Like six and a half percent
unemployments pretty high. But you know, some early inclinations that
maybe that would be enough. Why is that aspect of
the FED. You know, Janet yell And who I think
many would consider it to be a sort of devish
(31:38):
policy maker, never seemed to be particularly comfortable with the
idea of like letting it run hot at that time.
Why is that aspect one area in which you don't
see a particularly like a lot of like a creativity
about Yeah, So on the inflation side of things, I
think that we probably were headed in the direction of
(31:58):
a little bit more creative VI before this episode. Actually,
you know, they didn't sort of change their inflation target
in the sense that they made it. They gave it
a look back period, they made it an average over time.
I think we're getting like pretty close to that with
just like actually nudging it up a bit, But we
didn't get there. They certainly didn't do that. But I
do think that there was sort of like, you know,
(32:19):
not a thousand flowers were blooming, but a few more
flowers were blooming when it came to the inflation target.
On the employment side of things, I would say that
they are conservative in the sense that they still think
about the world through a sort of very Phillip's curve framework.
Meaning that there's some trade off between employment and inflation.
But I think that they've become a lot more modest
(32:39):
about their ability to understand that Philip's curve. And it's
difficult to say they hear because we're talking about like
nineteen policymakers, and this applies to each of them a
little bit differently. Some of them are still pretty devoted
adherence to the idea that they can specify some sort
of natural rate of unemployment. But I think a lot
of them, and including the chair importantly right now, has
(33:02):
have become a lot more skeptical about the idea that
you can credibly predict how low unemployment can go without
causing inflation at any given moment, And so I do
think some of that conservativism has actually waned with time.
This episode obviously throws a big rention for that, right.
I mean, you do get the sense from policymakers now
they are more open about saying like, well, maybe there
is something particularly about inflation that we are missing here,
(33:25):
and I think we've had one or two people on
the show who've talked openly about that. But this actually
leads into something else I want to ask you, which
is with that realization that perhaps there's something about the
Phillips curve that's changed or that we don't fully understand
as policymakers. And also with the evolution of the fed's
role in the financial system and markets. How do FED
(33:49):
officials themselves feel about this? Presumably you talk to current
and former ones. How do they explain it and how
do they talk about it? Yes, so I think a
lot of times when you talk to FED officials about this,
you will hear some amount of concern actually that if
you ask the FED to do too much, it won't
be able to do anything well. So I do think
(34:11):
that that is a thing that they're very attuned too,
and that's I mean, it's not a huge surprise. I
think they kind of gave us some hints of that
and sort of that twenty fifteen hiking cycle that you
were previously talking about when Congress just wasn't passing anything
to help the economy along, and you know, you would
hear FED officials occasionally say that out loud. But I
think after twenty twenty, I think there was still some
feeling that you just don't want to push too much
(34:31):
on the FED. Not everything should be the Fed's job.
I do think when it comes to sort of the
framework and the how do you think about the economy
in this brand new world, I think the you know,
the jury is just not out yet. They're they're still
trying to figure out what went wrong in twenty twenty
and twenty twenty one, and they're still trying to figure
out what's what's going wrong now because they don't seem
to be getting this inflation under control as quickly as
(34:53):
they had expected to. I think so, I think it's
just a situation in flux. How much of the rapid
movement and it was like basically day after day in
early twenty twenty, their ability to roll out these new programs.
How much easier was that because of scaffolding basically that
was built in two thousand and eight and two thousand
and nine, And how much specifically the work of like
(35:14):
Brunankee work with Geitner, et cetera, enabled Powell and Manuchin
together to move as fast as they did. So I
think that there I'm actually gonna give a two part
answer to Okay, Part one is definitely the scaffold. Scaffolding
mattered a lot a They kind of had a pattern
for how this could work, and B they had some
ability to not make the mistakes that happened in two
(35:35):
thousand and eight, Like, for example, they kept better track
of these programs and were very transparent about them. They
told us what they were buying, not at a five
year leg but just immediately. And B they got congressional
backstop for every single one of the programs that mattered.
Like it wasn't like what I described earlier in two
thousand and eight when they used private sector money to
set up the TAF And I think the reason they
did that is because they thought that there was some
(35:56):
sort of democratic legitimacy to having that sort of you know, buy,
and also it's easier. It was like an easier setup.
But I do think the democratical legitimacy part mattered there,
and so I think we learned a lot of lessons
from two thousand and eight. Part B, though, I would say,
is while they learned a lot of lessons in the
scaffolding mattered, they had to set up a bunch of
(36:16):
new programs that they had never seen, never tried before,
municipal main street lending, etc. Etc. And I also think
that they had really not been anticipating that they were
ever going to have to use the two thousand and
eight programs again, for example money market mutual fund program
that took ton of effort, a lot of late nights,
a lot of huge scrambling to get set up because
(36:36):
they just money markets had changed so much in the
interroom and they hadn't really like been keeping up with it.
Like there was no design ready to roll off the
counter for this program, and so it did require a
lot of last minute sort of legal legal you know, finessing.
You know, looking forward. Obviously there's always people complaining about
the FED from everyone. Go that's not new years ago.
(36:58):
You know, you've had this sort of like abolish the
FED types, audit the FED types, various attacks on it
from different angles. But it more or less like seems
to operate and buy and large. I get impression that
politicians have other things to worry about that or you know,
the play better on TV than like, you know, the
arrangement of monetary policy. Do you perceive any change to
(37:21):
the trajectory of the FED either your institutional setup. I mean,
it seems like this sustained period of high inflation maybe
not great for the FED standing within politics within DC,
but do you see any like real threats or on
the horizon to the sort of modus operanda of monetary
(37:41):
policy in this country. Yeah, so I think actually A,
I think the sort of little c conservativism that you
were talking about earlier helps them a little bit in
this regard. I think when you're like boring, when you
just bore people to death, it makes them less likely
that they are going to come and meddle with your
Federal Reserve Act. So I think that's useful. I do,
and I talk about this a bit in the book.
I do think that there are a couple of things
(38:03):
we should pay attention to here, though. One of them
is I just think that the elected government has become
so much more aware of what the FED is capable
of and what it can do with some of its powers,
both the emergency lending powers and just bond buying, which
has become much more passe than it used to be.
And I think that you have to keep an eye
on what kind of appointments are being made to the
(38:24):
Fed's board in Washington. The board is so powerful, The
board does so much of what the FED does, and
it's presidentially appointed people, and it turns over relatively quickly.
They're very long terms, but people don't typically stay in
them for the long terms, and so you often have
a situation where it's relatively politically lined up in one direction,
and it's got all these powers can potentially have a
(38:46):
partisan lean, And I just think that given how much
power this institution has, that's something to be very aware of.
And I think it's something to make sure elected officials
are focused on appointing nonpartisans to the degree possible and
feasible in a very partisan world. It is interesting talking
about like the conservatism. Even the presidents of both parties
seemed to be conservative in their picks, Like other than
(39:09):
Trump's failed nomination of Judy Shelton, most of his names
were like pretty conventional, okay, But I think you just can't.
I feel like this is a thing that often happens
in the media and we just pretend like the Judy
Shelton nomination didn't happen and didn't almost get confirmed right,
like I think because there was there were some really
interestings there where they were like just scrapped immediately, like
(39:33):
Steve Moore was not going to realistically get this job.
I mean, I think it's highly likely at some point
the culture wars come to the FED. Yeah, And I
mean you've seen it with the ESG space and investing
like it. To me, it's just a matter of time.
And the way they came for the Supreme Court, you know,
I think we're in a place with the FED that
you I think the Supreme Court is the right analogy
(39:54):
to years. You know, it used to be treated in
a very different way, not by any sort of legal
require ronment, just because that's the way we thought about
the Court. And we're at that stage now where we
treat the FED a certain way, not because of any
legal requirement, just because that's how we think about the FED.
And I think it's just a thing to be aware of.
You wouldn't want this power to go partisan, because they
go partisan in both ways. Can I just exactly my point? Yes,
(40:17):
I totally. Can I just say, we have these monitors
in the studio of like different TV networks and I
just saw Larry Cudlow in one of the screens and
I thought about, like FED Governor Larry Pudlow one day,
No against Larry, but you know it's like future like
I don't know, probably not at this point, but it
is sort of funny to think about. That's like most
of the names other than Shelton that have ever been nominated,
(40:39):
you don't associate too strongly with like one party. But
but you know, the other time, Joe, the other screen
is to Santis touts culture war priorities in Florida's speech,
So you know, there you go. It's a it's a
sign of what's coming, solely a matter of time. Gena Smilok,
thank you so much. Congrats on the book, and really
appreciate you coming on, Odlum, thank you having me, Tracy.
(41:15):
I really enjoyed that conversation. I thought that last point
in particular, that like what we've seen with the Supreme Court,
because like obviously, like you know, presidents have always applyned
more liberal or conservatives, but also like now you don't
expect to get any votes from the other party for
your nomination, etc. Like we haven't quite seen that it
happened with the figuet, but it's almost like, how is
(41:37):
it going to avoid It seems highly unlikely to me
that this like very powerful group of technocrats is somehow
going to be immune to the intense politicization that we've
seen of literally everything else in the past few years.
So that's point one. But I also thought Gina made
a really good point about you know, there is all
this criticism of the FED, often for just defied reasons,
(42:01):
and to some extent, it has been accumulating all these
new powers and abilities that it hasn't been explicitly designated
to have, at least by voters. But also sometimes it's
making the tough choices and sometimes there aren't great outcomes. Yep, no,
and just as ideal, Like I keep thinking of it
as like it's independent in the sense that, okay, it's
(42:23):
supposed to be sort of immune from partisan politics and
make hard decisions and do the tough thing, and that's
an element. But then there's also these sort of like
operational independent one entity in DC that does not have
to like, you know, always go for a vote or
come to for reelection or whatever. And as it gets
harder and harder to pass anything in DC, and I
(42:44):
don't think many people expect that trajectory to change, then
everyone's like, oh, you guys, you guys don't have to
worry about the politics that we do. So you're totally right.
And I think when you use I think you were
as you use the word sink, right, it's like a
sink for things that can't get done in Washington, and
that that is true, and it has been helpful at times.
But the more it does that, I think, the more
(43:05):
attention it's going to garner, and the more it becomes
a target totally, and the more partisan it will become,
and the more people will be really focused on. Okay,
but what is your stands on the Fed's role in
funding climate ceter like? These kinds of things, they'll inevitably
get more heightened and then you'll have more of those
fifty one and forty nine nomination votes and things like that. Yeah,
(43:26):
on that happy note, shall we leave it there? Let's
leave it there. Okay. This has been another episode of
the Old Thoughts podcast. I'm Tracy Alloway. You can follow
me on Twitter at Tracy Alloway and I'm Joe Why
Isn't Thal? You can follow me on Twitter at the Stalwart.
Follow Gina on Twitter Gina Smileock. She's at Gina Smilek,
and check out her new book, Limitless. The Federal Reserve
(43:46):
takes on a new age of crisis. Follow our producers
Carmen Rodriguez at rman Armin and Dash Bennett at Dashbot.
And check out all of our podcasts Bloomberg under the
handle at podcasts and from or odd Lots content. Go
to Bloomberg dot com slash odd Lots, where we post transcripts,
Tracing I blog, and we have a newsletter that comes
(44:07):
out every Friday. Go there and sign up. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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