August 22, 2025 • 31 mins
In this episode of Something More with Chris Boyd, Chris and Russ Ball unpack the political drama surrounding the Federal Reserve and its embattled Chair, Jerome Powell. From historical power struggles to current-day maneuvering by the president, they explore how monetary policy, interest rates, and central bank independence shape the economy- and your portfolio. With echoes of Nixon-era stagflation and Volcker’s radical reforms, this episode offers a compelling look at why the Fed matters more than ever.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner practitioner
and senior vice president financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to Something More with Chris Boyd.
I'm Chris Boyd and I'm here with Russ
Paul.
We are both of the AMR team at
Wealth Enhancement and glad to have you joining
(00:42):
us.
You know, the Fed has been in the
news quite a bit these days.
So I thought we would talk a little
bit about what is going on with the
Fed.
It seems like a lot of activity and
a lot of speculation and so let's get
into it.
Let's start off with Russ.
It seems like the president has maybe, we
(01:05):
know for the last several months, he's been
really focused on the Fed chair and the
desire for the Fed chair Powell to reduce
interest rates for the Federal Reserve Fed funds
rate to go down as an effort to
stimulate more economic growth.
(01:27):
And the Fed has been somewhat hesitant to
do that, paying attention to data and saying
it's unclear.
And lately the president's, what's he calling him?
It's like too slow or something.
I forget.
He's definitely hurling insults, right?
(01:49):
He's got some nickname for him.
I forget what it is now, but the
idea that he's too late, maybe it was.
Something like that.
Oh yeah, yeah.
But anyway, after the whole, when inflation kicked
in in 2022 or 21 and the Fed
was somewhat late to jump on that.
Now, the Fed is concerned because on the
(02:10):
one hand, there is signs of inflation while
at the same time, there are signs of
weakening in the economy, whether it's unemployment or
wherever.
So what will happen remains to be seen.
I think this week, the Fed has a
meeting that'll be in the news quite a
bit with their Jackson Hole summer meeting.
(02:33):
And so that's one aspect of this, but
it seems as though like we saw maybe
a week or two ago, the president went
out to the Federal Reserve where they're doing,
they have some big construction thing going on
with renovations.
And I think the president was trying to
(02:55):
call attention to potential cost overruns in an
effort to try to undermine Fed chair because
he has a term that doesn't end until
sometime in 2026.
And the president would like to replace him
right away.
But so one way he's trying to do
that is to say, oh, malfeasance, he hasn't
(03:16):
done a good job as Fed chair and
he hasn't been paying attention to some of
these issues.
And that may be the attack, the approach
they get at trying in an effort to
remove the Fed.
Now, the Fed has historically been independent of
political pressures by and large.
Most administrations do not try to pressure the
(03:39):
Federal Reserve in terms of monetary policy.
The Federal Reserve, the central bank is responsible
for monetary policy and monetary policy relates to
this effort to try their dual mandate of
trying to manage inflation on the one hand
and employment on the other hand.
(04:00):
Russ, I know you have some insights for
the historical context of the Federal Reserve.
Maybe we can take a minute to talk
about that.
And then we can come back to this
issue of what the president's trying to do
and maybe a different tack he's been taking
over the last week or so.
Yeah, definitely.
(04:21):
I think because the Fed has been in
the news so much recently, I mean, pretty
consistently, but maybe more so recently with Trump
putting the microscope on Powell and really trying
to create a full court press against Powell
himself.
Yeah.
So anyway, going back into the history of
the Fed was kind of interesting.
Basically in the early 1900s, it was more
(04:45):
enmeshed with the executive branch and the treasury
secretary was essentially the Fed chair initially.
Then in World War I, the Fed was
trying to basically help banks subsidize the costs
of the World War I by lending money
to banks for buying Liberty Bonds.
(05:07):
Anyway, fast forward to the 1950s, there's-
Well, when did the Fed get actually created
as an independent?
I think, wasn't it in the aftermath of
like the 1920s, you know, that with the
crash, was it part of that legislation that
led to the FOMC and all of this?
(05:29):
So I don't know the exact details, but
I think that there was a period after
the, there was some more independence prior to
the Great Depression.
And then after the Great Depression, Roosevelt kind
of stepped in and took more ownership of
the Fed and monetary policy in order to,
you know, help deal with the aftermath-
(05:51):
With the Great Depression.
Of the Great Depression, exactly.
And then, you know, slowly started shifting a
little bit into the 1950s.
And it was not until the 1950s where
the Federal Reserve really became its own-
Sort of independent.
Its own independent entity.
So in the case of the Fed right
now, although, you know, where it falls in,
(06:16):
you know, oversight and all of that, it's
funded to some extent by the Congress.
However, the Fed is run with a lot
of autonomy.
And, you know, this is sometimes a complaint
that people have about, you know, is it
accountable?
(06:36):
So in any case, this is one of
those challenges that I think often we've seen,
whether it was Ron Paul or, what's, who's
the Senator Paul now?
Rand Paul.
Rand Paul.
So the, these, they both have had, and
(06:57):
he's, Ron Paul's retired, but, you know, they
both have had those critiques of the Federal
Reserve over time.
And the desire for audits and all this
kind of stuff.
Yeah, there is this like historical push and
pull between the independence of the Fed versus
should it be something that, you know, is
(07:18):
run by elected officials and is more in
line with the leading party, that kind of
thing.
And the merits of the argument of its
independence, I think, is one that largely markets
have appreciated because it's not a political move.
It's for the benefit of stability in the
(07:41):
economy.
And that is appealing to markets.
So you don't super juice the economy and
then have, you know, a overheated economy and
then a crash of a recession of some
kind.
You know, you tend to get this effort
to create greater stabilization within the economy so
(08:02):
that if it's running too hot, they slow
it down.
If it's running too cool, they speed it
up.
So that kind of thing.
And various tools.
The largest, most commonly utilized today is that
the interest, the short-term interest rate that
the Fed focuses on.
(08:23):
During the Great Recession, we saw the Fed
try to also move long-term interest rates
through what became known as quantitative easing and
quantitative tightening later on, you know.
So there's some, the purchase of bonds on
the far end, the longer-term bonds has
(08:45):
been a newer development as a consequence of
the Great Recession.
But it has not historically been an active
part of what the Fed does.
The Fed primarily focuses on money supply and
the short-term interest rates.
Fair enough?
Yeah, exactly, exactly.
(09:07):
And I think, you know, going back to
some of those periods in history where there
was that dynamic of, is it gonna become,
you know, more enmeshed with the executive branch
or is it gonna remain independent?
Those sort of battles have taken place throughout
history.
This is not the first time that this
has happened.
(09:28):
And it really, the Fed really took a
stance in the 1950s with Truman, who was
looking to lower interest rates so he could
pay less for the obligations from World War
II.
And- Soon after, what was it, Eisenhower,
you've got the infrastructure that came, a lot
of highway system and all that kind of
(09:48):
stuff that came out with a lot of
expense.
Yeah, so there was a lot of borrowing
for those and if their interest rate is
higher, that means that, you know, we're gonna
end up paying more for those debts.
So Truman tried to basically talk to the
Fed chair and try to talk him into
lowering interest rates.
The Fed took a stance and decided, no,
(10:09):
we really need to maintain our independence here.
If we don't, we're gonna lose all credibility
and that's gonna create another economic issue, you
know, down the road.
Yeah, interesting.
So Truman relented and the Fed really became
independent once more.
That kind of consisted until Nixon came in
(10:30):
and then at a push for Nixon's reelection
campaign, he wanted interest rates to come down
again.
And for the most part, presidents want interest
rates to come down to improve the economy
and make conditions.
Yeah, so that was the case with Nixon.
And very interestingly, there was a similar sort
of smear campaign against the Fed chair at
(10:50):
the time.
And in that case, Nixon sort of won
over and it created this whole stagflation issue
in the 70s.
So, I mean, it wasn't, you know, there
are other factors as well, of course, but
that was a big issue was, you know,
the decisions that Nixon made, the pressure he
(11:10):
put on the Fed chair at the time
really created issues down the road.
It wasn't immediate, but it showed up down
the road.
So that brings us to the 70s and
the stagflation that was seen there that was
hugely momentous for that time.
And- In comes Paul Volcker.
(11:31):
In comes Paul Volcker.
And interestingly with Volcker, he was, you know,
when he was courted by Jimmy Carter to
be the Fed chair, he was insistent on
having that independence because he knew that it
was gonna take radical measures to be able
to reduce inflation and bring the economy back
into order.
(11:53):
So basically his agreement with Jimmy Carter was,
all right, let's get some independence and I'll
do it.
Jimmy Carter said, yes.
And Volcker, as you know, history knows, it
really had a huge impact.
Shocks the economy by raising interest rates sharply
to get inflation under control.
(12:13):
And then of course, simultaneously we had fiscal
policy under the Reagan administration with a revised
tax code.
And we're off to the races for some,
you know, a decade plus as the U
.S. economy really seemed to heat up.
Of course we had other factors in that,
(12:37):
the emergence of technology in that era.
So in any case, like, so all these
kinds of contributing factors to have greater stimulus
in the U.S. economy.
You have more on that?
I wanted one other thing.
One more piece.
So with Volcker, he knew that what his,
(13:00):
raising the interest rates and, you know, restricting
the monetary supply was going to have dramatic
effects on the economy that it was gonna
cause a recession.
He basically forecasted that.
It did happen, multiple recessions during that timeframe,
but he stuck to the game plan.
And as painful as it was, the economy
(13:20):
did recover and started on this new phase
of prosperity.
This huge period of time under Greenspan, who
was maybe in some arguments, more friendly to
business in the process.
You know, one of the things that I
(13:41):
was thinking about when we talk about the
history of the Fed, and I wanna get
into the current politics of it a little
bit too, but we've talked about cryptocurrency a
bit on the show from time to time,
and the idea that people are attracted to
it because of decentralized finances, the DeFi as
(14:03):
they refer to it.
And this notion that we don't want, you
know, government involved.
And I often make the comment that there's
a real virtue to what the Fed has
done when we look at, for example, most
not long ago in recent memory with the
financial crisis and the Fed's active, maybe beyond
(14:29):
their powers in some arguments, the things they
did to stabilize the financial system and the
banking system.
But more recently, we saw it under Powell
with a couple of years back when there
were some problems with Silicon Valley Bank and
First Republic, and a few of these banks
that had some problems.
It gave a real clear visual of what
(14:53):
is it that the Fed has done at
times is be able to step in, stabilize
the banking system to a point where the
public doesn't, we don't see these panics.
They used to call them panics, but these
panics where people would wanna have the run
on the bank and pull their money because
(15:15):
they have this backing from the Federal Reserve
structure.
And I pointed out from time to time,
because when people think about, there's been a
lot of focus on stable coin and some
recent regulatory developments, there's still a difference in
the banking structure with the Federal Reserve having
(15:36):
the ability to offer backstop and various resources
when there are times of stress on the
system.
And that's why we have a Federal Reserve
in many respects, right?
It's a combination of these dual mandate, try
to help with and mitigate inflation, keep inflation
in check, and have a more full employment.
(15:59):
If the economy is so disrupted or the
banking system is so disrupted, that will create
a lot of unemployment and a lot of
problems.
So the banking system is part of what
the Federal Reserve has a hand in monitoring
and governing in respects with the requirements that
(16:20):
are placed upon the banks.
So with all that said, a little bit
of the history, thank you.
But there's also what's going on now.
So we were talking about the president pressuring
Chairman Powell and trying to move interest rates
(16:40):
with the intention of maybe replacing the Fed
chair.
The president seems to have, or his administration
seems to have maybe moved on a different
tack slightly where they had a recent resignation
from a Fed governor who was replaced with
someone who's more friendly to the president's agenda
(17:02):
of lower interest rates.
And then this week we saw the president
going after another Fed governor with, Cook was
it?
With this interest in saying there was some
perceived controversy and saying you should resign.
So he's looking to start packing the Fed
(17:25):
with people who are more sympathetic, maybe a
more MAGA agenda with lower interest rates.
So now this, just as an aside, this
question, I don't know if you saw this
article about Lisa Cook, the Fed governor who
was accused of mortgage fraud.
(17:47):
And essentially what happened is she has two
mortgage loans.
She has a home in Michigan and a
condo in Georgia and they're both on the
mortgage application apparently as primary residences.
And you get a better mortgage terms when
(18:08):
it's a primary residence than a secondary residence.
And so the president put out a Trump
social tweet or whatever you call those, Cook
must resign now.
So a little bit of pressure trying to
remove, now whether or not this is actually
(18:33):
whether, people are saying, well, there's one question
of like, how it's raised on the application
could be relevant.
Was it that she lied on the application?
That could be a problem.
It wasn't that there was a question, do
you plan to make this your primary residence?
And maybe she did, right?
So I don't know the answer to those
(18:54):
things, but in any case, she's one of
the members of the Fed who is saying
it has been thus far keeping interest rates
steady as opposed to trying to want to
see things change.
So you can see where that's going, right?
Okay, so now there's also been some Fed
(19:16):
minutes released recently, did you see that one?
So basically the idea that there's a little
bit of dissension first time since the 90s,
I think it was 93 that we had
a public dissension from the Fed minutes where
some wanted one set of policies and others
(19:42):
did not.
Usually, even though there may be differing views,
what is publicly put forward is a uniform
perspective.
So in any case, we do see currently
there were two dissents that wanted interest rates
to be lowered.
I think there's conversation on the one hand,
(20:02):
some people think that inflation is a concern.
So they're on the other end of the
spectrum.
And then you have a lot of people
in the middle who are saying, let's wait
and see.
We've got tariffs on the one hand, we've
got some various data that suggests that could
be modestly impacting inflation, but will it be
long-term, will it be temporary?
(20:24):
And then there's also some weakening employment data.
So multiple views on this, how it will
be played out.
But I just think it's interesting that it
seems like the approach the president and his
team are taking is, well, let's try to
(20:44):
replace some of these people.
Yeah, it seems pretty clear that that's the
agenda.
Well, there's also been a lot of speculation
when it comes to the Fed as to
who may be the next Fed chair.
And I think there's a lot of, I
(21:08):
guess they're economists, vying for the job, essentially.
Yeah, and I think we'll start seeing more
dissenting views if interest rates remain unchanged.
Yeah, yeah.
A lot of interplay for that potential role
when it becomes available next year.
So in May of 26 is when Jerome
(21:29):
Powell's role is set to expire as chair.
Now, whether or not he stays on as
a Fed governor or not is an unknown
question.
He could, I guess it's more common for
once a Fed chair finishes their term to
kind of move on, you know.
(21:49):
But I don't know that it's necessarily mandatory.
No, I think he would be able to
be there until 2029 or something like that.
So he could stay on.
Yeah, seems pretentious.
What a thankless deal for him if he
does, but yeah.
So in any case, who might be the
(22:11):
next Fed chair?
We pulled out some stuff to say, oh,
who are they looking at?
And there's supposedly about 11 candidates right now
that are most prominent.
(22:31):
Some names you might recognize.
Some of these are former Fed governors and
things like that.
And some of you might not know, but
people may have heard of James Bullard.
He's been a frequent CNBC person who's a
former Fed governor, I think, St. Louis Fed.
(22:52):
And he's pretty plain spoken.
I think he's interesting to hear, you know.
Larry Lindsey has been a Fed governor and
I think he's been in government as well.
Kevin Hassett is a name people will recognize,
former director of National Economic Council and the
current treasury secretary, Scott Besant is one of
(23:15):
the names that is being kicked around as
well.
So as well as some other highly regarded,
you know, Wall Street types that are in
the names as well.
So, I mean, who the heck knows, right?
At this point, it's like to maybe make
a guess about next May is way too
(23:38):
soon.
On the other hand, will the president be
more successful at placing pressure on trying to
pull Powell from the role?
I don't know.
It seems like that has been dissipating and
he's kind of taking a different tact.
I agree.
Yeah, I mean, it is important to note
(23:59):
that almost all, at least most of the
candidates you mentioned are leaning towards lowering interest
rates.
And I feel like that would be a
prerequisite to them getting, you know, that seat.
Yeah, absolutely, absolutely.
They're gonna be in that mold, right?
Of trying to be furthering the president's agenda.
(24:23):
Yes.
Right, as kind of a given.
What else did we plan to talk about
on the Fed topic?
Well, I think it's important to look at
the historical context and see like what has
happened when the Fed lost independence or lost
(24:47):
some semblance of independence.
Yes.
There has not been a lot of evidence
that that is the best course of action.
Policy, yeah.
And you look at what the scenario I
described with Nixon and while there wasn't an
immediate impact, it was, you know, lowering of
interest rates in the face of increasing inflation
(25:08):
to help with the election odds, which ended
up winning, you know, worked out for him
in that sense, but then the country suffered
tremendously as a result down the road.
Yeah, I mean, you can make, I mean,
the whole stagflation thing is beyond the role
of the Fed, obviously, you know, and you
made that point earlier, but it's worth reiterating
(25:28):
that, you know, what was going on in
the economy at that time, you know, there's
a lot of varying forces that were driving
that in the process of, you know, fuel
shortages and just the economy was in a
different, it was a very different economy then
than it is now.
(25:49):
Yeah, I definitely don't wanna make it like
it was just that one, you know, event
or that one driver, there are definitely multiple
factors, but there's always gonna be multiple factors
and it's, the fact is.
This is an important one.
Yeah, the factors that are combining to create
a certain economic forecast is, you know, that's
what's gonna change, make or break what happens.
(26:11):
I think one of the articles I was
reading in Barron's was also talking about the
equivalent of the Fed chair in Greece in
the last decade and the, I don't know
if it's the president or prime minister of
Greece, but whoever was making those Fed decisions
(26:33):
kept changing out the Fed chair if they
wanted to increase interest rates to combat inflation.
To make sure they were getting their policy
addressed.
Exactly, and that did not shape up well
for Greece.
Yeah, and you can look to a lot
of other locations where you've seen similar kind
of stories where when the policy of the
central bank is politicized or politically driven, it
(26:56):
often does not help the economy.
It often is, undermines the credibility of that
central bank and makes the, the predictability of
policy and the expectations of industry to be
(27:17):
more suspect or, you know, circumspect of what's
gonna happen.
Yeah.
And it ultimately, it tends to undermine economic
conditions.
Yeah, I mean, when there is alignment between
the leading branch of government and the Fed,
to that extent, it does make the Fed
(27:38):
lose credibility because then it's not really a
data-driven approach.
It's not a neutral, like outside perspective.
It's whatever the president says goes.
And, you know, I look back at examples
where Trump was pointing out Powell and saying
he should resign or he's gonna kick him
out.
The next day, the market had a negative
(27:59):
reaction pretty consistently.
So every time that's come up, he had
to take his foot off the gas against
Powell to some degree.
Yeah, I think that's a fair point.
So, well, none of us knows how this
will play out.
We thought this was kind of interesting just
because there's so many variables that have been
in the news of late.
Thought we'd take a minute to kick it
(28:20):
around and point out some of these issues.
You know, it's one of many things that
you as an investor need to be mindful
of when you think about your portfolio.
There's so many things to be looking at.
What's happening in the world around us is
one of those.
What's happening in the economy and which sectors
(28:43):
and economic data.
This speculation on what's happening with the Fed
Reserve is in some respects more of the
drama than it is the policy that, you
know, but there are some policy implications.
And ultimately what I wanna like walk away
as we wind down the show is say,
(29:04):
you know, there's a lot for you to
be paying attention to as an individual investor.
And when it's possible, you may benefit from
having some help in the process.
And looking at not only some of these
shiny objects that are out there, but also
some of the mundane data points that can
(29:26):
be relevant to how you think about what's
happening in the economy and ultimately how you
might wanna be positioning your portfolio.
That is how a financial advisor might be
a resource to you to help in a
way that's outside of the kind of things
you might be looking at regularly.
(29:48):
In any case, if we can be a
resource in that process, don't hesitate to reach
out to us.
We are inclined to start with a financial
plan and then move to how does that
impact your portfolio and then review how that
portfolio is structured to see if we've got
the right structure for you.
If we can be a resource to you
with a second opinion or if you'd like
(30:10):
a complimentary consultation, just reach out.
Thanks for being with us.
Until next time, keep striving for something more.
Thank you for listening to Something More with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
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(30:30):
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(30:51):
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(31:13):
financial decisions.
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner practitioner
and senior vice president financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to Something More with Chris Boyd.
I'm Chris Boyd and I'm here with Russ
Paul.
We are both of the AMR team at
Wealth Enhancement and glad to have you joining
(00:42):
us.
You know, the Fed has been in the
news quite a bit these days.
So I thought we would talk a little
bit about what is going on with the
Fed.
It seems like a lot of activity and
a lot of speculation and so let's get
into it.
Let's start off with Russ.
It seems like the president has maybe, we
(01:05):
know for the last several months, he's been
really focused on the Fed chair and the
desire for the Fed chair Powell to reduce
interest rates for the Federal Reserve Fed funds
rate to go down as an effort to
stimulate more economic growth.
(01:27):
And the Fed has been somewhat hesitant to
do that, paying attention to data and saying
it's unclear.
And lately the president's, what's he calling him?
It's like too slow or something.
I forget.
He's definitely hurling insults, right?
(01:49):
He's got some nickname for him.
I forget what it is now, but the
idea that he's too late, maybe it was.
Something like that.
Oh yeah, yeah.
But anyway, after the whole, when inflation kicked
in in 2022 or 21 and the Fed
was somewhat late to jump on that.
Now, the Fed is concerned because on the
(02:10):
one hand, there is signs of inflation while
at the same time, there are signs of
weakening in the economy, whether it's unemployment or
wherever.
So what will happen remains to be seen.
I think this week, the Fed has a
meeting that'll be in the news quite a
bit with their Jackson Hole summer meeting.
(02:33):
And so that's one aspect of this, but
it seems as though like we saw maybe
a week or two ago, the president went
out to the Federal Reserve where they're doing,
they have some big construction thing going on
with renovations.
And I think the president was trying to
(02:55):
call attention to potential cost overruns in an
effort to try to undermine Fed chair because
he has a term that doesn't end until
sometime in 2026.
And the president would like to replace him
right away.
But so one way he's trying to do
that is to say, oh, malfeasance, he hasn't
(03:16):
done a good job as Fed chair and
he hasn't been paying attention to some of
these issues.
And that may be the attack, the approach
they get at trying in an effort to
remove the Fed.
Now, the Fed has historically been independent of
political pressures by and large.
Most administrations do not try to pressure the
(03:39):
Federal Reserve in terms of monetary policy.
The Federal Reserve, the central bank is responsible
for monetary policy and monetary policy relates to
this effort to try their dual mandate of
trying to manage inflation on the one hand
and employment on the other hand.
(04:00):
Russ, I know you have some insights for
the historical context of the Federal Reserve.
Maybe we can take a minute to talk
about that.
And then we can come back to this
issue of what the president's trying to do
and maybe a different tack he's been taking
over the last week or so.
Yeah, definitely.
(04:21):
I think because the Fed has been in
the news so much recently, I mean, pretty
consistently, but maybe more so recently with Trump
putting the microscope on Powell and really trying
to create a full court press against Powell
himself.
Yeah.
So anyway, going back into the history of
the Fed was kind of interesting.
Basically in the early 1900s, it was more
(04:45):
enmeshed with the executive branch and the treasury
secretary was essentially the Fed chair initially.
Then in World War I, the Fed was
trying to basically help banks subsidize the costs
of the World War I by lending money
to banks for buying Liberty Bonds.
(05:07):
Anyway, fast forward to the 1950s, there's-
Well, when did the Fed get actually created
as an independent?
I think, wasn't it in the aftermath of
like the 1920s, you know, that with the
crash, was it part of that legislation that
led to the FOMC and all of this?
(05:29):
So I don't know the exact details, but
I think that there was a period after
the, there was some more independence prior to
the Great Depression.
And then after the Great Depression, Roosevelt kind
of stepped in and took more ownership of
the Fed and monetary policy in order to,
you know, help deal with the aftermath-
(05:51):
With the Great Depression.
Of the Great Depression, exactly.
And then, you know, slowly started shifting a
little bit into the 1950s.
And it was not until the 1950s where
the Federal Reserve really became its own-
Sort of independent.
Its own independent entity.
So in the case of the Fed right
now, although, you know, where it falls in,
(06:16):
you know, oversight and all of that, it's
funded to some extent by the Congress.
However, the Fed is run with a lot
of autonomy.
And, you know, this is sometimes a complaint
that people have about, you know, is it
accountable?
(06:36):
So in any case, this is one of
those challenges that I think often we've seen,
whether it was Ron Paul or, what's, who's
the Senator Paul now?
Rand Paul.
Rand Paul.
So the, these, they both have had, and
(06:57):
he's, Ron Paul's retired, but, you know, they
both have had those critiques of the Federal
Reserve over time.
And the desire for audits and all this
kind of stuff.
Yeah, there is this like historical push and
pull between the independence of the Fed versus
should it be something that, you know, is
(07:18):
run by elected officials and is more in
line with the leading party, that kind of
thing.
And the merits of the argument of its
independence, I think, is one that largely markets
have appreciated because it's not a political move.
It's for the benefit of stability in the
(07:41):
economy.
And that is appealing to markets.
So you don't super juice the economy and
then have, you know, a overheated economy and
then a crash of a recession of some
kind.
You know, you tend to get this effort
to create greater stabilization within the economy so
(08:02):
that if it's running too hot, they slow
it down.
If it's running too cool, they speed it
up.
So that kind of thing.
And various tools.
The largest, most commonly utilized today is that
the interest, the short-term interest rate that
the Fed focuses on.
(08:23):
During the Great Recession, we saw the Fed
try to also move long-term interest rates
through what became known as quantitative easing and
quantitative tightening later on, you know.
So there's some, the purchase of bonds on
the far end, the longer-term bonds has
(08:45):
been a newer development as a consequence of
the Great Recession.
But it has not historically been an active
part of what the Fed does.
The Fed primarily focuses on money supply and
the short-term interest rates.
Fair enough?
Yeah, exactly, exactly.
(09:07):
And I think, you know, going back to
some of those periods in history where there
was that dynamic of, is it gonna become,
you know, more enmeshed with the executive branch
or is it gonna remain independent?
Those sort of battles have taken place throughout
history.
This is not the first time that this
has happened.
(09:28):
And it really, the Fed really took a
stance in the 1950s with Truman, who was
looking to lower interest rates so he could
pay less for the obligations from World War
II.
And- Soon after, what was it, Eisenhower,
you've got the infrastructure that came, a lot
of highway system and all that kind of
(09:48):
stuff that came out with a lot of
expense.
Yeah, so there was a lot of borrowing
for those and if their interest rate is
higher, that means that, you know, we're gonna
end up paying more for those debts.
So Truman tried to basically talk to the
Fed chair and try to talk him into
lowering interest rates.
The Fed took a stance and decided, no,
(10:09):
we really need to maintain our independence here.
If we don't, we're gonna lose all credibility
and that's gonna create another economic issue, you
know, down the road.
Yeah, interesting.
So Truman relented and the Fed really became
independent once more.
That kind of consisted until Nixon came in
(10:30):
and then at a push for Nixon's reelection
campaign, he wanted interest rates to come down
again.
And for the most part, presidents want interest
rates to come down to improve the economy
and make conditions.
Yeah, so that was the case with Nixon.
And very interestingly, there was a similar sort
of smear campaign against the Fed chair at
(10:50):
the time.
And in that case, Nixon sort of won
over and it created this whole stagflation issue
in the 70s.
So, I mean, it wasn't, you know, there
are other factors as well, of course, but
that was a big issue was, you know,
the decisions that Nixon made, the pressure he
(11:10):
put on the Fed chair at the time
really created issues down the road.
It wasn't immediate, but it showed up down
the road.
So that brings us to the 70s and
the stagflation that was seen there that was
hugely momentous for that time.
And- In comes Paul Volcker.
(11:31):
In comes Paul Volcker.
And interestingly with Volcker, he was, you know,
when he was courted by Jimmy Carter to
be the Fed chair, he was insistent on
having that independence because he knew that it
was gonna take radical measures to be able
to reduce inflation and bring the economy back
into order.
(11:53):
So basically his agreement with Jimmy Carter was,
all right, let's get some independence and I'll
do it.
Jimmy Carter said, yes.
And Volcker, as you know, history knows, it
really had a huge impact.
Shocks the economy by raising interest rates sharply
to get inflation under control.
(12:13):
And then of course, simultaneously we had fiscal
policy under the Reagan administration with a revised
tax code.
And we're off to the races for some,
you know, a decade plus as the U
.S. economy really seemed to heat up.
Of course we had other factors in that,
(12:37):
the emergence of technology in that era.
So in any case, like, so all these
kinds of contributing factors to have greater stimulus
in the U.S. economy.
You have more on that?
I wanted one other thing.
One more piece.
So with Volcker, he knew that what his,
(13:00):
raising the interest rates and, you know, restricting
the monetary supply was going to have dramatic
effects on the economy that it was gonna
cause a recession.
He basically forecasted that.
It did happen, multiple recessions during that timeframe,
but he stuck to the game plan.
And as painful as it was, the economy
(13:20):
did recover and started on this new phase
of prosperity.
This huge period of time under Greenspan, who
was maybe in some arguments, more friendly to
business in the process.
You know, one of the things that I
(13:41):
was thinking about when we talk about the
history of the Fed, and I wanna get
into the current politics of it a little
bit too, but we've talked about cryptocurrency a
bit on the show from time to time,
and the idea that people are attracted to
it because of decentralized finances, the DeFi as
(14:03):
they refer to it.
And this notion that we don't want, you
know, government involved.
And I often make the comment that there's
a real virtue to what the Fed has
done when we look at, for example, most
not long ago in recent memory with the
financial crisis and the Fed's active, maybe beyond
(14:29):
their powers in some arguments, the things they
did to stabilize the financial system and the
banking system.
But more recently, we saw it under Powell
with a couple of years back when there
were some problems with Silicon Valley Bank and
First Republic, and a few of these banks
that had some problems.
It gave a real clear visual of what
(14:53):
is it that the Fed has done at
times is be able to step in, stabilize
the banking system to a point where the
public doesn't, we don't see these panics.
They used to call them panics, but these
panics where people would wanna have the run
on the bank and pull their money because
(15:15):
they have this backing from the Federal Reserve
structure.
And I pointed out from time to time,
because when people think about, there's been a
lot of focus on stable coin and some
recent regulatory developments, there's still a difference in
the banking structure with the Federal Reserve having
(15:36):
the ability to offer backstop and various resources
when there are times of stress on the
system.
And that's why we have a Federal Reserve
in many respects, right?
It's a combination of these dual mandate, try
to help with and mitigate inflation, keep inflation
in check, and have a more full employment.
(15:59):
If the economy is so disrupted or the
banking system is so disrupted, that will create
a lot of unemployment and a lot of
problems.
So the banking system is part of what
the Federal Reserve has a hand in monitoring
and governing in respects with the requirements that
(16:20):
are placed upon the banks.
So with all that said, a little bit
of the history, thank you.
But there's also what's going on now.
So we were talking about the president pressuring
Chairman Powell and trying to move interest rates
(16:40):
with the intention of maybe replacing the Fed
chair.
The president seems to have, or his administration
seems to have maybe moved on a different
tack slightly where they had a recent resignation
from a Fed governor who was replaced with
someone who's more friendly to the president's agenda
(17:02):
of lower interest rates.
And then this week we saw the president
going after another Fed governor with, Cook was
it?
With this interest in saying there was some
perceived controversy and saying you should resign.
So he's looking to start packing the Fed
(17:25):
with people who are more sympathetic, maybe a
more MAGA agenda with lower interest rates.
So now this, just as an aside, this
question, I don't know if you saw this
article about Lisa Cook, the Fed governor who
was accused of mortgage fraud.
(17:47):
And essentially what happened is she has two
mortgage loans.
She has a home in Michigan and a
condo in Georgia and they're both on the
mortgage application apparently as primary residences.
And you get a better mortgage terms when
(18:08):
it's a primary residence than a secondary residence.
And so the president put out a Trump
social tweet or whatever you call those, Cook
must resign now.
So a little bit of pressure trying to
remove, now whether or not this is actually
(18:33):
whether, people are saying, well, there's one question
of like, how it's raised on the application
could be relevant.
Was it that she lied on the application?
That could be a problem.
It wasn't that there was a question, do
you plan to make this your primary residence?
And maybe she did, right?
So I don't know the answer to those
(18:54):
things, but in any case, she's one of
the members of the Fed who is saying
it has been thus far keeping interest rates
steady as opposed to trying to want to
see things change.
So you can see where that's going, right?
Okay, so now there's also been some Fed
(19:16):
minutes released recently, did you see that one?
So basically the idea that there's a little
bit of dissension first time since the 90s,
I think it was 93 that we had
a public dissension from the Fed minutes where
some wanted one set of policies and others
(19:42):
did not.
Usually, even though there may be differing views,
what is publicly put forward is a uniform
perspective.
So in any case, we do see currently
there were two dissents that wanted interest rates
to be lowered.
I think there's conversation on the one hand,
(20:02):
some people think that inflation is a concern.
So they're on the other end of the
spectrum.
And then you have a lot of people
in the middle who are saying, let's wait
and see.
We've got tariffs on the one hand, we've
got some various data that suggests that could
be modestly impacting inflation, but will it be
long-term, will it be temporary?
(20:24):
And then there's also some weakening employment data.
So multiple views on this, how it will
be played out.
But I just think it's interesting that it
seems like the approach the president and his
team are taking is, well, let's try to
(20:44):
replace some of these people.
Yeah, it seems pretty clear that that's the
agenda.
Well, there's also been a lot of speculation
when it comes to the Fed as to
who may be the next Fed chair.
And I think there's a lot of, I
(21:08):
guess they're economists, vying for the job, essentially.
Yeah, and I think we'll start seeing more
dissenting views if interest rates remain unchanged.
Yeah, yeah.
A lot of interplay for that potential role
when it becomes available next year.
So in May of 26 is when Jerome
(21:29):
Powell's role is set to expire as chair.
Now, whether or not he stays on as
a Fed governor or not is an unknown
question.
He could, I guess it's more common for
once a Fed chair finishes their term to
kind of move on, you know.
(21:49):
But I don't know that it's necessarily mandatory.
No, I think he would be able to
be there until 2029 or something like that.
So he could stay on.
Yeah, seems pretentious.
What a thankless deal for him if he
does, but yeah.
So in any case, who might be the
(22:11):
next Fed chair?
We pulled out some stuff to say, oh,
who are they looking at?
And there's supposedly about 11 candidates right now
that are most prominent.
(22:31):
Some names you might recognize.
Some of these are former Fed governors and
things like that.
And some of you might not know, but
people may have heard of James Bullard.
He's been a frequent CNBC person who's a
former Fed governor, I think, St. Louis Fed.
(22:52):
And he's pretty plain spoken.
I think he's interesting to hear, you know.
Larry Lindsey has been a Fed governor and
I think he's been in government as well.
Kevin Hassett is a name people will recognize,
former director of National Economic Council and the
current treasury secretary, Scott Besant is one of
(23:15):
the names that is being kicked around as
well.
So as well as some other highly regarded,
you know, Wall Street types that are in
the names as well.
So, I mean, who the heck knows, right?
At this point, it's like to maybe make
a guess about next May is way too
(23:38):
soon.
On the other hand, will the president be
more successful at placing pressure on trying to
pull Powell from the role?
I don't know.
It seems like that has been dissipating and
he's kind of taking a different tact.
I agree.
Yeah, I mean, it is important to note
(23:59):
that almost all, at least most of the
candidates you mentioned are leaning towards lowering interest
rates.
And I feel like that would be a
prerequisite to them getting, you know, that seat.
Yeah, absolutely, absolutely.
They're gonna be in that mold, right?
Of trying to be furthering the president's agenda.
(24:23):
Yes.
Right, as kind of a given.
What else did we plan to talk about
on the Fed topic?
Well, I think it's important to look at
the historical context and see like what has
happened when the Fed lost independence or lost
(24:47):
some semblance of independence.
Yes.
There has not been a lot of evidence
that that is the best course of action.
Policy, yeah.
And you look at what the scenario I
described with Nixon and while there wasn't an
immediate impact, it was, you know, lowering of
interest rates in the face of increasing inflation
(25:08):
to help with the election odds, which ended
up winning, you know, worked out for him
in that sense, but then the country suffered
tremendously as a result down the road.
Yeah, I mean, you can make, I mean,
the whole stagflation thing is beyond the role
of the Fed, obviously, you know, and you
made that point earlier, but it's worth reiterating
(25:28):
that, you know, what was going on in
the economy at that time, you know, there's
a lot of varying forces that were driving
that in the process of, you know, fuel
shortages and just the economy was in a
different, it was a very different economy then
than it is now.
(25:49):
Yeah, I definitely don't wanna make it like
it was just that one, you know, event
or that one driver, there are definitely multiple
factors, but there's always gonna be multiple factors
and it's, the fact is.
This is an important one.
Yeah, the factors that are combining to create
a certain economic forecast is, you know, that's
what's gonna change, make or break what happens.
(26:11):
I think one of the articles I was
reading in Barron's was also talking about the
equivalent of the Fed chair in Greece in
the last decade and the, I don't know
if it's the president or prime minister of
Greece, but whoever was making those Fed decisions
(26:33):
kept changing out the Fed chair if they
wanted to increase interest rates to combat inflation.
To make sure they were getting their policy
addressed.
Exactly, and that did not shape up well
for Greece.
Yeah, and you can look to a lot
of other locations where you've seen similar kind
of stories where when the policy of the
central bank is politicized or politically driven, it
(26:56):
often does not help the economy.
It often is, undermines the credibility of that
central bank and makes the, the predictability of
policy and the expectations of industry to be
(27:17):
more suspect or, you know, circumspect of what's
gonna happen.
Yeah.
And it ultimately, it tends to undermine economic
conditions.
Yeah, I mean, when there is alignment between
the leading branch of government and the Fed,
to that extent, it does make the Fed
(27:38):
lose credibility because then it's not really a
data-driven approach.
It's not a neutral, like outside perspective.
It's whatever the president says goes.
And, you know, I look back at examples
where Trump was pointing out Powell and saying
he should resign or he's gonna kick him
out.
The next day, the market had a negative
(27:59):
reaction pretty consistently.
So every time that's come up, he had
to take his foot off the gas against
Powell to some degree.
Yeah, I think that's a fair point.
So, well, none of us knows how this
will play out.
We thought this was kind of interesting just
because there's so many variables that have been
in the news of late.
Thought we'd take a minute to kick it
(28:20):
around and point out some of these issues.
You know, it's one of many things that
you as an investor need to be mindful
of when you think about your portfolio.
There's so many things to be looking at.
What's happening in the world around us is
one of those.
What's happening in the economy and which sectors
(28:43):
and economic data.
This speculation on what's happening with the Fed
Reserve is in some respects more of the
drama than it is the policy that, you
know, but there are some policy implications.
And ultimately what I wanna like walk away
as we wind down the show is say,
(29:04):
you know, there's a lot for you to
be paying attention to as an individual investor.
And when it's possible, you may benefit from
having some help in the process.
And looking at not only some of these
shiny objects that are out there, but also
some of the mundane data points that can
(29:26):
be relevant to how you think about what's
happening in the economy and ultimately how you
might wanna be positioning your portfolio.
That is how a financial advisor might be
a resource to you to help in a
way that's outside of the kind of things
you might be looking at regularly.
(29:48):
In any case, if we can be a
resource in that process, don't hesitate to reach
out to us.
We are inclined to start with a financial
plan and then move to how does that
impact your portfolio and then review how that
portfolio is structured to see if we've got
the right structure for you.
If we can be a resource to you
with a second opinion or if you'd like
(30:10):
a complimentary consultation, just reach out.
Thanks for being with us.
Until next time, keep striving for something more.
Thank you for listening to Something More with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
(30:30):
Whatever's on your mind, visit us at somethingmorewithchrisboyd
.com or call us toll free at 866
-771-8901 or send us your questions to
amr-info at wealthenhancement.com You're listening to
Something More with Chris Boyd Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
(30:51):
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clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
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conduct their own due diligence before making any
(31:13):
financial decisions.
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