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Good Afternoon on Wednesday, the Federal Open Market Committee voted to lower interest rates by a quarter percentage point or twenty five basis points.
My colleagues and I remained squarely focused on our achieving hour dual mandate goals of maximum employment and stable prices for the benefit of the American people.
This follows a cut of the same size at the fed's September meeting, which was the first cut all year. Policymakers also announced plans to stop shrinking the size of the Central Bank's portfolio of securities starting on December first. The Fed's decision was in reaction to signs of a weakening labor market, even though stubborn inflation and declining consumer
confidence still concern policymakers. Federal Reserve chair Jerome Powell talked about the rationale for the cut at a news conference on Wednesday afternoon.
Conditions in the labor market appeared to be gradually cooling, and inflation remains somewhat elevated.
The October meeting comes in the midst of an ongoing White House push to pressure the Fed Reserve and its chairman to cut rates more aggressively. The latest criticism came Tuesday, during President Trump's trip to Asia. I call him too late.
He's always too late.
He's been too late, and uh, Jerome too late Powell. The President also noted that Powell's term as chairman will soon come to a close in May.
We got a bed fed guy, but he'll be out of there a few months.
Powell was able to keep the committee largely in lockstep this month. There were two descents. FED Governor Stephen Myron wanted to see a larger cut of fifty basis points, and Jeffrey Schmidt, who heads up the Kansas City FED, was in favor of keeping rates steady. What happens at the next meeting in December and beyond is quickly becoming anyone's guess.
In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Oolsey is not on a preset course.
I'm David Gerra, and this is the big take from Bloomberg News Today. On the show, I sit down with Amera Amokway and end of Kourran. We've covered the Federal Reserve for Bloomberg to break down the factors that influenced the October rate cut and to talk about what they're watching through the end of this year into twenty twenty six.
After Federal Reserve Chair Jerome Powell announced a cut of twenty five basis points on Wednesday, I asked Bloomberg's end of Current to break down what we know about the committee's decision making.
Until around July part of this year, the feder thought the jobs mark was doing well. They were more concerned
about inflation. But in recent months we've seen clear evidence that companies are hiring at a slower rate, and of course, at the same time during the cations, inflation is perhaps headed in the right direction, not there yet, but headed in the right direction, giving a window for the FED could So that's why they went ahead with their move today to lower rates for the second decision in a row, reflecting their concerns now or more of but the job's market done inflation.
Something else that's happened recently the government has shut down. The FED is not funded through congressional appropriations, so its staff are unaffected by the shutdown, but that doesn't mean the Central Bank is completely insulated from its effects. The FED relies on data produced by agencies like the Bureau of Labor Statistics and the Bureau of Economic Analysis, whose
staff have been for a load. Bloomberg's amearra A. Mokway says, that's meant that key economic gauges and reports have come in late or not at all.
So I think FED policymakers would have preferred to have more official government data. But what you heard a lot of them saying in the intermting period is that the data that they did have was still pointing in the same direction, and that direction was in one of a weaker labor market. And you didn't see Chair Power or other policy makers pushing back against market expectations for a quarter point cut at this meeting, and so that basically signals to people headed into the meeting that the FED
was going to be comfortable cutting here. That the level of concern about the labor market has continued to rise, and you are seeing a group of policy makers expressing a little bit more comfort with the inflation outlook because some of the tariff passed through has been less than initially feared, and because some do believe that sort of the underlying trend in inflation when you strip out sort
of the tariff effects, is lower. And so you saw FED policy makers take all of that and say, Okay, we feel comfortable cutting again.
And the absence all of the data that the FED would usually have, what have policymakers been doing? So you've been listening to speeches and them in interviews. What are they kind of leaning on? More so now that they don't have the full panoply of economic data from the government.
So there are private sector gauges, gauges of consumer confidence, gauges of industrial activity, gauges of where the jobs market is at. There are those private sector indicators that the Feder's lean on, which is useful. They did, of course, get all important inflation data last week, which was in one data release that the government effectively green lighted, but
they have been flying blind on the jobs market. I guess today's decision reflects the fact that for now they've concluded the market, the job's market is weakening, and that they need to move in advance of a weakening any further. But you have to say the longer this kind of data avoid continues, that decision will get more complicated because they simply won't know where the job's market is at.
Let's stick with those inflation data. So the BLS released the September CPI report a few days later than it was expecting to brought people back to go through the data that've been collected. You look at CPI excluding food and energy, which are known to be more or volatile, and we saw the price of consumer goods an increase point two percent from the month before, a softer read than was expected by Wall Street and a lot of economists.
Sounds like we have a good sense of what that means for this meeting, for the October meeting, looking ahead to December. How did that kind of change the conversation that's taking place about the Fed's path forward.
Well, so there's no doubt inflation came in a touch on the soft side in September. That does encourage, of course, policy makers that maybe are headed in the right direction. But you know, economists say plenty of culture around that number, David, And for example, the big decline in rents, for example, is considered maybe to be one off, maybe some statistical noise there, even though tariffs haven't passed through the way we might have expected. There certainly is some tariff impact
in terms of tradable inflation. You look at furnishings, you look at apparrel by the way, so those kind of goods that are imported, showing some price pressure there. And the point being that the end result is inflation remains around three percent, well above the Fed's two percent target.
So yes, you can say, okay, inflation's not coming in as bad as we might have expected, but it's nowhere near where the central bank needs it to be or wants it to be, and that's expected to be something of a complicating theme in the months ahead, And of
course it will be driven by the labor market. If there's a view, for argument's sake, the labor market has stabilized if we reach that point, given that some people blame it on the immigration crackdown anyway, So if you reach that point, then you might say inflation comes back
into the story and the Fed goes in hold. But of course we've had a point where the labor market continues to weaken and people are losing their jobs, and let's just say inflation is where it's not not getting any worse, well, then at that point the FED will probably feel much more pressure to keep cutting rates rather than staying on hold.
I think I can speak for a mar when we say we love hearing you say apparel and not a pair of.
Alvera.
So, as I said, we had, we had workers come back to get this release together to put it out there, but we know from the White House there's no data collection happening now. So tease out for a sort of what that means, and we talk about flying blind the prospect that there not being another CPI report on the heels of this, and what does that mean for the Fed?
Yeah, that would be not great. And the White House has already signaled that we aren't going to get a repeat of that of the inflation release that we saw last week. And you heard chaer Pal talk about this earlier this month. He said, Okay, we're fine for now, but if this goes on, then it becomes more challenging for policy makers to make their decisions in the absence of data. Right, they were already facing a very tricky
policy landscape. As we've been discussing. There is a group of FED policy makers that does have this heightened concern about the labor market, but there is another group that is still like, wait a minute, inflation is still a big problem. And without data to kind of inform them about how these factors are developing and evolving, it makes it very difficult for the FED to calibrate its policy
response correctly. And so if this goes on, the FED could face a really challenging position at its December meeting. And as we had into twenty twenty.
Six after the break, how the balance of power at the FED could soon shift as jap Powell's term comes to a close and who's on the short list to replace him. The clock is ticking for Federal Reserve Chair Jerome Powell. After this month's meeting, there are only four more meetings left until he concludes his term as chair
in May of twenty twenty six. Bloomberg's and Merri Mokway and end Occurrent say that looming above it all is the reality that President Trump and Treasury Secretary Scott Bessont intend to name Powell's successor before his term is up. I ask them how that decision will affect Powell's ability to lead the FED in the months ahead.
He has until May and of course, he could stay on as a governor on the FED Board. I look like any job like Annie Roll. At some point his power will start to wane. He will become something of
alame duck. And you'd have to say the obvious moment for that might be when his successor is announced, and the indications from President Trump he might make that announcement before the end of the year, and as soon as that happens, a lot of folks let swing to that person's public commentary, speeches, interviews and everything else in terms of where the FED might be going forward in terms of policy. But you know, right here, right now, Truman
Palace still remains pretty much in control. It's clearly a vibrant debate going on on the Fed's policy board. You can see that in the minutes and in the public speeches and everything else. But he seems to be steering it in the direction he wants. So i'd say, right here, right now, David, He's influence remains intact. But as I say, once his successor is appointed, you'll start to see someone of that drain away.
Er.
Let's talk a bit about that process of picking a successor. So we learned from Treasury sectory Scott Besson, who's overseeing this search. There are five leading candidates here, So there's Chris Waller, current governor, Michelle Bowman, Kevin Warsh, Kevin Hassett, and Rick Reader who's at Black Rock. So you've got some current Fed governor, as a former Fed governor, somebody who's on Wall Street for good measure. What do you make of the list?
I think it is actually a diverse set of candidates. We have Kevin Hassett, who is the current chair of the White House National Economic Council, which means he's one of Trump's top economic advisors, one of Trump's top allies. But you also have people like Chris Waller, who is viewed as sort of a more independent person. So while he was appointed to the FED Board by Trump, he is viewed as someone who is not willing to necessarily just go along with whatever Trump might want.
Right.
He has made a lot of credible calls on the economy over the years, and he's viewed as someone who would be inclined to continue to do that, but would also perhaps be open to some of the kinds of changes that you've heard President Trump and his allies talk about wanting at the FED. Then you have Mickey Bowman,
who is kind of an untraditional candidate. She comes from a banking background, also an appointee of Trump to the board, and is really seen as someone who in some ways is aligned with Trump, particularly on the regulatory front, and this year she has been in favor of rage. She was an earlier proponent of rates than many others on the FED board, so she's kind of seen as aligned with Trump, but also having sort of this unique view and this unique background.
There's also Kevin Worsh, who was a leading contender for the job back in twenty seventeen but lost out to Powell.
And in many ways Worsh has aligned with the Trump administration. A lot of his critiques of the FED are pretty much in lockstep with the critiques we've been hearing from Treasury Secretary Bessant, and he is also a proponent of lower rates, which is likely to appeal to the President. And then Rick Great I think is a little bit of of a dark Corse, kind of an unknown, a
Wall Street guy. So yes, like a really diverse slate of candidates, each with I think different kinds of expertise and backgrounds and.
What's the status of this process. So we have this list, and I think we learned that Scott Best and the Treasury sectory intends to give maybe a list of finalists to the President around the Thanksgiving holiday. What do we know about the president's level engagement with this process and sort of what's going to be factoring to his thinking as he makes the selection.
Yeah, so we know the timeline is pretty much as you mentioned, David Is. Both the President and Treasures actually said over the weekend that roughly speaking, the short list will go to the President in around Thanksgiving and decision will come at some point in the week's after. We don't know too much in terms of what the President is thinking about the individuals, but we certainly know he's
thinking a lot about the FED. He's been posting on social media about it incessantly since he took office back in January. He's clearly of the view that interest rates need to be much lower. He's adamant that the FED
need to react and act on those views. He wants the next FED chair to obviously share his worldview in terms of the economy and monetary policy, but the trick for the President will be to pull off appointing someone who he can be confident shares, as I say, his worldview, which is that there's a case for lower in gistrates without really spooking the markets, because he will have to know that credibility is still critical for the FED. And of course we know President Trump is very cognizant of
the markets. So it's going to be I think it's going to be a more tricky balancing act for him to pull off than he might himself think.
Actually, Mary, you've been looking at all of these individuals, but at Chris Waller in particular. You profiled him. Why did you decide to kind of dig into his biography and outlook and what did you learn about how he might approach this job.
Yes, so we wanted to look at Chris Waller because of this question. Right, if a person has an independent streak, if they are a person who believes in conducting credible economic analysis and making policy decisions based on what is in the best interest of the economy and not necessarily what the president says, how does someone like Chris Waller get the job? Can he get the job?
How would he approach the job?
Right? Because he does have this reputation as being a tried and true economist. And what we learned from talking to his friends and associates is that, yes, right now he is in the camp of lower rates, but the way he got to that place was what they say is a credible analysis of the data. He looked at the labor market and he said, this is weakening. And he was the first among the FED governors this year to say we should resume cutting because the labor market
is showing these warning signs. And I think his associates, though, also say that he is not necessarily someone who's going to be committed to the status quo. And in reporting the story, we learned that in his role on the FED right now, he oversees the twelve regional FED banks and he has really pushed for streamlining and cost cutting and even some staff cuts. So it's not the case that he would necessarily just continue to approach the FED
as it has been. He is open to some change, but that doesn't mean that he's necessarily going to go along with whatever President Trump says.
And then let me play this out. So, as you said, there's going to be a point at which FED Chair Jerome Powell's influence begins to wane as we get to the end of his tenure. For a while, there's been this idea floated if there being a kind of shadow chair, that is, the President could pick somebody to be the next FED chair, and that person, by opining on monetary policy and the role of the FED, could kind of confuse financial markets. Does it do something to kind of
blunt the fear about having a shadow FED chair? If the President were to pick Chris Paller.
I mean, you know, or is central casting macroeconomists, if he was to be appointed, it probably would be offered something of a reassurance to investors who are nervous about where the FED might be heading, because ultimately he's grounded economics and that's what he is, and the signals he's given is that he will be willing to stand up
to political pressure and be guided by data. If it's not someone like Waller, for example, then I think there would be a lot more scrutiny, a lot more focus than what that person is saying, because if we get to the turn of the year, you know, you're four or five months out from German Pal's term ending, naturally, a lot of the focus and interest will gravitate to or whoever that next person coming in will be.
Where are we in this conversation about the sanctity of FED independence, how safety experts think the kind of independence of the FED is at this point in time.
There's a big thing that we haven't talked about, which is the fact that President Trump is attempting to fire FED Governor Lisa Cook, Right, And I think the outcome of that case, which now sits at the Supreme Court, is going to be ultimately the answer to that question
about FED and dependence. Right. So, the Supreme Court denied the Trump administration's requests to be able to remove least to Cook while this underlying case around an accusation of mortgage fraud plays out, and they're going to have hearings in January, so they kind of kick the can down a road a little bit, so we have a little
bit of a reprieve. But ultimately, whatever the Supreme Court says about this case is going to have huge implications for the question of the Fed's independent because if the President can remove a FED governor while there's an underlying legal case playing out, that means that he has pretty wide latitude to remove a FED governor and the inability or the difficulty of removing a FED governor has long been seen as the key protection for central bank independence,
and so if that is somehow watered down, then I think it really does open the door for the president to have much more influence over the central bank.
This is the Big Take from Bloomberg News. I'm David Gura. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow