Bloomberg Audio Studios, podcasts, radio news. I'm joined now by someone who intimately understands the FED was there for ten years and most recently was the FED Vice chair under J. Powell, who is still now the chair, and that's of course Lale Brainerd. Lale, thank you so much for joining us this morning. As we see this standoff between President Trump and Governor Cook, we have yet to hear from the FED itself. What kind of response do you think we can expect from the institution.
Well, I think the Federal Reserve is an incredibly difficult position here, but you have to remember this is not about an individual governor. This is really an unprecedented attack on the independence of the Federal Reserve as an institution. There is nobody in the Federal Open Markets Committee, the Monetary Policy Setting Committee that can't be thinking, well, what
does this mean for me? And so any member of the board presumably is going to worry that they too could be subject to this kind of political pressure and that fundamentally undermines the institutional independence of the FED, which means higher inflation, potentially less credibility, even higher long term interest rates bad for the economy.
Do you think this can actually impact how members are thinking about monetary policy.
Well, I just think the implication if any member of that board could come under this kind of political pressure from the White House, and of course we saw that kind of pressure on the chair earlier this year. I think that does really put a higher premium on whether they're going to be willing to speak their minds to sent on key votes if necessary. I think it really does create unprecedented risks.
The letter talked about this mortgage allegation fraud in the mortgage world for Governor Cook, what if she was charged or convicted?
Well, I think what is important here is due process and undertaking a real investigation and having the facts on the table, and the ability for her to defend herself legally. None of that has taken place here. The White House has preempted the process, and so that is why it's
really unprecedented. It's very very threatening to the very independence of the Federal Reserve, and it should cause concerns, I think among investors and more broadly about that fundamental underpinning of our strong economy and our strong financial markets.
Given this is just about one individual, does the Fed come out and say something or do they need to wait until that due process takes place.
So the Federal Reserve as an institution is all about due process. And there have been individuals who have had investigations previously. There's a good process for doing that. That's not what's taking place here. This is really about trying to overturn the majority of the Board of Governors long before any of these governor's terms are up, by threatening them with these kinds of investigations and firing without real
due process and cause. And again, the Federal reserves independence really is at stake here, and that means that monetary policy will increasingly be overshadowed by concerns that there's political interference, whether or not that is actually the case if you think about it. J Powell opened the door for an interest rate cut in September very clearly that's exactly what the president wants, so monetary policy, he's actually moving his way.
And yet this is a very very aggressive attack on the Federal Reserve when monetary policy is doing exactly what he's been calling for.
That speech, the FED chair gave a Jackson hold just on Fridays, very different from how he sounded J Powell four weeks ago. Do you think the speech was political.
Well, I think that the Chair was very careful in
laying out that the balance of risks had shifted. He pointed specifically to the possibility that the labor market is weakening faster than the members of the FMC had believed in their last meeting because of the revisions to three months worth of hiring data, and so he laid out a very I think strong case based on data and the facts, why they were now potentially going to be more attentive to that labor market weakening while acknowledging that inflation is still likely to go up because of the
very high tariffs that have been put in place.
Knowing the data and knowing all the personnel that are going to get together at the next FED meeting September seventeenth, do you expect them all to walk through that door that the FED chair opened up for a cut.
Well, I don't know if all members of the FMC will be in the same place, and of course what we should hope for is a really good debate and an airing of differing views. But I do think that barring something really surprising in the upcoming employment print and CPI print, it's more likely than not that they will vote for a twenty five basis point reduction in the federal funds rate.
Do you think there's a bias to the labor market in this federal reserve?
So up until this point, I think what we've heard is a lot of discussion about the potential risks to inflation. Inflation is still high. It is between two and a half and three percent, and while this time last year it was going in the right direction moving down to the two percent target, this year is actually moving up.
So we have heard a lot of attention to inflation, appropriately so, but the chair acknowledged that they are balancing risks, risks of higher inflation, risks of lower employment, and that is exactly what you expect from tariffs, a stagflationary shock.
When he was talking about tariffs, he said that it's not going to come all at once. The impact is the fedcher basically signaling to the market and to us to just look through any potential hot CPI prints that come out between now in the next twelve months.
So my interpretation of that discussion is simply to acknowledge that when the labor market starts to turn down, unemployment often doesn't gently move up, and the Federal Reserve doesn't have a lot of time to react. Unemployment often jumps higher. Whereas because the tariffs have changed a number of times and still do not seem to be settled. Because businesses were so good at getting inventories in ahead of time, because consumers did a lot of advanced purchases, those tariffs
are working their way into prices more slowly. So I think it was just an acknowledgement of different potential timing on the two legs of the dual mandate.
It felt like Chair Powell was coming around to how Governor Waller thinks, or maybe how Governor Bowman thinks. And I want to end on those two individuals their names potentially to be the next FED chair, but their scenario. People are talking about that all the presidents terms need to be renewed in February. Would you see a situation or risk at the FED Board, would next multiple presidents at the bidding of the President of the United States.
Well, I think that is exactly the risk that we are seeing play out right now. So by moving preemptively to remove a governor from the Federal Reserve without going
through the process, without there being any clear evidence. The President essentially is moving to shift the majority of the Board of Governors well before what was contemplated in terms of the institutional structure in their terms, and that opens the door when renewals of all of the Reserve Bank presents come up in February, to again take very unprecedented actions and potentially not renew some of them in order
to shift the overall voting majority on the FMC. That is an unprecedented attack on the independence of the Federal Reserve and it should really concern us about their ability to continue to be credible in fighting inflation and keeping our economy on a strong course.
Which is quickly. You know, Governor Bowman and Waller, do you think they would be up for that kind of level of revamping.
This is really not about individual members of the Board or the FLMC. This is really about whether political pressure will continue to be exerted on all members of the FLMC in a way that puts them in jeopardy and potentially makes them less willing to share their views about the economy and appropriate monetary policy with the public and also to vote their mind on monetary policy decisions. That is what is at stake here, and I think it's very concerning