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Less than forty eight hours after the presidential election was called for Donald Trump, Federal Reserve Chair Jerome Powell announced the Central Bank's latest rate cut.
At today's meeting, The committee decided to lower the target range for the federal funds rate by a quarter percentage point.
That was supposed to be the news of the day. Stocks were up after all, even if most people watching the Fed closely expected it, But the moment that raised eyebrows had nothing to do with the rate cut. Multiple reporters asked Powell about how he would respond to a US president trying to replace him, something Trump had looked into in his first term.
Some of the president's elects advisors have suggested that you should resign.
If he asked you to leave, would you go?
No?
Do you think that legally you're not required to leave? No?
Do you believe the president has a power to fire or demote you? And it has the FED determined the legal body of a president demoting at will any of the other governors with leadership positions not.
Permitted under the law. This was a pretty stunning moment.
For months on the campaign trail and throughout his first presidency, Trump has been critical of the FED, and he said that he might try to influence the Central Bank's decision making. Powell's answers today set up a rematch, a renewed power struggle over the Fed's mission and independence between the world's most influential central banker and the world's most powerful president
that will loom large in the coming months and possibly years. Today, on the show How the Federal Reserve is gearing up to navigate the tricky political road of a second Trump term, I spoke with Kate Davidson, Bloomberg's managing editor for US Economic Policy, about how the world's most powerful central bank is expected to protect its independence with a president that seems determined to pull it into the political fray. From
Bloomberg's Washington bureau. Is the Big Take DC podcast, I'm Salamosen So, Kate, there was a standout moment in today's press conference.
What happened? Yeah, this was a pretty stunning moment. A reporter asked Jay Powell about the idea that President elect Trump could ask him to resign and what would he do if he got that request? Would he step down? And he answered with one very forceful word no. And there was a follow up question and it was, you know, essentially, do you think that legally you're not required to? And he said again no, And that was that was basically the the uh, you know, the end of that exchange.
It was pretty remarkable and I think that it was laying down a clearer marker two days after the reelection of the former president, who had sparred very openly with j Powell in his first term, saying, you know, essentially, I'm not going anywhere.
So the reelection of Trump is going to put an even bigger spotlight on the FED. Tell me why that is?
Sure? So there's an elect Trump. In his first term he was in the White House, he was not shy about sharing his feelings about the FED and about his nominee. He nominated Jay Powell and pretty soon after seemed to maybe have some regrets.
About that decision and called him a bonehead.
He had a lot of spicy things to say about the FED chair. I mean, he was very explicitly pushing the FED to lower rates and then when they began that process at the time, pushing them to go faster and further. As president, he wanted a stronger economy. He wanted a stronger growth, and he wanted the FED to help him in that effort, and was frustrated that essentially, the FED, I think would seem looking back, did what they say that they usually do, which is ignore all of it.
So Trump actually explored whether he could fire or demote Powell from his position as chair.
Tell me how did the.
FED respond to pressure from Trump during that first term. I think it did raise a lot of questions, certainly outside of the building, about how bothered are policymakers, how bothered is Jay Powell by this?
Right? Is the FED starting to get anxious and nervous about this? I mean, they to play it very straight and won't comment on this, but internally we know that they looked into at least this question. I think at the times Leah you had reported, a FED spokesperson at the time said that there's not really it doesn't appear to be any sort of legal justification for firing the FED chair. So clearly FED lawyers were paying attention and
we're looking into this. But when it came down to the policy decisions that the FED made, I think, apart from maybe some small criticism about could they have gone sooner or later. Just did they delay any decision making because of this? I think broadly the view was no, they didn't. They basically set it aside. J Powell kind of stuck to the script, avoided questions about Trump, avoided weighing in on the criticism of him, whether he would leave early, whether he was worried about his job, any
of that, and just kept doing their jobs. I mean, I will say one other thing behind the scenes, though, is he definitely did work very hard to shore up his relationships with members of Congress, and he had a lot of support from Republicans and that time.
Years later, I heard randomly that one of the former FED chairs, either Ben Bernank or Alan greens Man, sent by post a pair of earmuffs to J. Powell saying, don't listen in These criticisms of the Fed were something Trump kept up during his campaign this year. I've made a lot of money.
I was very successful, and I think I have a better instinct than in many cases people that would be on the Federal Reserve.
Or the chairman. So what do you think he was hoping to do by making these kinds of remarks while campaigning.
I think it was essentially putting them unnoticed. When he comes into office, he certainly once again will not hesitate to share his views and his feelings about where interest rates should be. He went even further to say, you know, he thinks he should have a say on rates. He thinks there's nothing wrong with that. He said, Hey, they don't have to listen to me, but I should have a right to say I know a lot about this.
I don't think I should be allowed to order it, but I think I have the right to put in comments as to whether or not interest rates should go up or down. That might seem, I think, to an average person, like a reasonable argument that you know, what's so bad about the president saying where he thinks interest
rate should be. The issue is if we were to look at other countries around the world when you see and hear this kind of talk, this kind of over political pressure, that it can seep into the decisions that the policy makers are making. So for a very long time, you know, Seleia, there had been a policy in the White House, across administrations, across political parties to just not go there.
From the nineties up until Trump, right, just.
Don't say anything at all about rates or about the Central Bank to avoid the risks that there could be for even perceived political pressure because markets pay attention to that.
So we've talked about some of the ways that Trump has sought to or talked about breaking tradition and moving into the Fed's leane and politicizing the FED. But the FED does have guard rails to protect it from political interference. Can you tell me about some of those. Sure.
So one of the key guard rails has to do with appointments to the FED Board. So the President nominates the officials that serve on the board, and they are meant to serve fourteen year terms. The point is that these positions don't coincide with presidential election cycles. In other words, when a new president is elected, that's not an opportunity
for him to clean house at the FED. And when it comes to the chair in particular, the terms are basically meant to and at least a year after a new president comes in, those terms are kind of staggered, and that's by design. So those are probably the most important guardrails. And then to be clear on that, the president nominates those officials, but the Senate has to confirm them.
So otherwise the FED is an independent agency. I mean, they don't need the White House to rubber stamp or sign off on these rate decisions.
So with those kinds of protections in place, could he really try to push the Fed into setting interest rates to suit his political agenda once he's picked his own FED chair.
I think that's the big question, right, I mean, if the President were able to install and nominate and get support for someone in that role who was willing to listen to him, then yes he could. He could in theory, influence what the FED does. Of course, the FED chair
is just one person, but that's a powerful position. I mean, the chairman leads the committee, leads the FED Board, but also there's a broader committee of decision makers includes the presidents of the twelve regional FED banks, and the chair of that committee that person is chosen by all of
those policymakers. So technically, say President Trump were to nominate someone to become chairman of the FED Board in Washington, had all the supportive Republicans and that person went in, they would still need to be chosen as the chair by all of their colleagues. So that's one potential check on that, but it's a risk, and I think there have been some questions about what would that look like. When President elect Trump has said he wants to have
more say, how would that work. Would it be, you know, calling up the day before a policy meeting and saying, here's what I'd like you to do, and would the person and the job listen? Which is tweeting right? I mean that will be a very big question in the Senate confirmation process for the next nominee to be FED chair.
For all the Federal Reserves efforts to stay out of politics, it's going to have to face the reality of Trump's economic agenda coming up. How that could complicate the Fed's efforts to tame inflation. What do we know about what Trump wants from the Fed? He's unhappy, What does he want monetary policy to deliver for him?
This is a tricky question because obviously before the election, he was complaining that the half point rate cut was too big. But it was obviously political to use his words. Everyone knows that was a political maneuver that they tried to do before the election. I think, as we've seen with this president that when he is in power, that tends to shift his view and he's his opinion on these things. Generally speaking, presidents tend to like lower rates.
So what will he do when he comes into office. The FED is already lowering rates. They've started cutting them from the very high levels where they'd been to fight inflation for the past couple of years. So despite his complaints about the half point cut, could he come in and complain, Hey, you're not lowering them fast enough. You need to go faster, and you need to go bigger. I wouldn't be surprised to see that.
And the reason presidents like low interest rates is because it basically juices the economy.
Yes, yes, to put a finer point on it, it's just good for growth. Lower borrowing costs generally helped to spur spending by consumers and investments by businesses. But the risk, of course, is that when you have too much of that, inflation can pick up. And that's you know, we hadn't had a high bout of inflation in forty years, and the FED is still grappling with the fallout from very
high inflation of the past few years. And so I think that they are going to continue to be very cautious about how they approach cuts, and that could lead to some natural tension with the incoming president.
The FED might operate independently from politics, but it will have to factor in Trump's economic agenda as it sets interest rates. How could some of those proposed policies affect the federal reserves efforts to get inflation under control.
Well, there's a lot that we know about what President elect Trump has said he wants to do, but of course the devils in the details. A lot will depend on the outcoming Congress, but we have a pretty good sense of at least the issues that he would prioritize. He's been very clear that he would pursue higher tariffs, although the amounts could vary right and could depend on which countries he goes after. That is something that economists
se as inflationary. It's essentially a tax that's passed on to consumers and by some estimates, could cost American households thousands of dollars a year. That could put upward pressure on prices, and that's inflation. That's the Fed's job to be worried about that issue. So there's that Congress will grapple next year with a very big domestic policy issue that tax cuts and jobs Act, which was actually passed during President Trump's first term and implemented in twenty eighteen.
That's set to expire large portions of that at the end of twenty twenty five. So a big tax cut could inject more stimulus into the economy. That's something that the FED will have to consider. And this issue of immigration or portation. You President Trump has said that he would pursue a policy of deporting a number of migrants, potentially very large number, and that could affect, you know, the labor supply, it could have broader effects on the economy.
So all of those issues combined have sort of raised the potential or the risk that the FED might have to approach rate cuts a little more carefully, a little more cautiously.
How soon do you think that we'll see the impact of Trump's presidency on the FED. It's a great question, and I don't know what the answer is. I do think that we expect that the President elect, as he did in his first term, will have a lot to say about the Fed's decisions. And I think that the rest of the Republican Party other members could take a similar sort of approach and really scrutinize what they are doing.
I think that the FED, even though they're very used to ignoring political criticism, they do have to answer to the public, and I think that it makes it more important and perhaps a little trickier for them to explain very clearly why they're doing what they're doing. You know, when they are facing political blowback, as they potentially will from the incoming president, they just have to be that much more clear about, well, this is why we're doing
what we're doing. In other words, it's not for political reasons. It's not to help somebody or hurt somebody. It's about doing what's best for the economy. That is how they will likely explain it. Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm Salia Mosen. This episode was produced by Julia Press with support from David Fox. It was edited by Caitlyn and Kenney. It was mixed by Alex Sugia in fact checked by Adriana Tapia. Naomi Shaven,
who also edited this episode, is our senior producer. Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole Beevester Bower is our executive producer. Sage Bauman is Bloomberg's head of podcasts. Please follow and review The Big Take DC wherever you listen to podcasts. It helps new listeners find the show
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