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I'm Stephen Carol and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg.
It is my pleasure and my honor to announce my nomination of Jerome Powell to be the next Chairman of the Federal Reserve. Based on his record, I am confident that Jay has the wisdom and leadership to guide our economy through any challenges that our great economy may face.
It was a relationship that started well, but during Donald Trump's time in the White House things changed.
I think the Fed is out of control. I think what they're doing is wrong. He is so far made a lot of bad decisions.
In my opinion, we have some tremendous opportunities right now, but Jerome Powell is not making it.
Trump has repeated some of those comments in his campaign for re election this year. Jerome Powell hasn't responded directly, but at this speech in April, the FED chair outlined the case for the Central Banks independence.
Such independence for a federal agency is and should be rare. In the case of the FED, independence is essential to our ability to serve the public. The record shows that independent central banks deliver better economic outcomes. We recognize that we need to continually earn this granted independence, and we do so by carrying out our work with technical competence and objectivity in a transparent and accountable manner, and by sticking to our knitting.
With the possibility of another Trump presidency on the horizon, it's an issue that's back in focus. In fact, some of Trump's informal advisors have recently floated ideas which could give the president more control over the Central Bank. So here's why Trump being re elected could spell trouble for the FED. Our Federal Reserve reporter Amera Mouquay joins me now for more high amer great to have you with us. First of all, what are these ideas that are being floated? Where are they coming from?
So in recent weeks, reporting has come out both from us here at Bloomberg and other outlets like the Wall Street Journal that informal and outside advisors are kind of putting forth proposals and thinking of ideas that could potentially
curb the independence of the Federal Reserve. So some of those ideas, for instance, are allowing the president to have more of a say in interest rate decisions, or allowing the president to find a way to fire the FED chair Jerome Palell before his term as chair is up in twenty twenty six. So these are things that are really radical ideas. Right, Presidents have generally respected the independence
of the Federal Reserve. They definitely have not had a say in interest rate decisions at the Federal Reserve because the idea is that you want the central bank to be independent so that it can make decisions that are best for the economy without consideration.
Or fear of political retribution.
And so this reporting has really raised speculation that former President Trump, if he were to be reelected, could tamper
with the FED. And there's a good history there to suggest that Trump could take an untraditional posture towards the FED because during his presidential term he very publicly criticized the FED and Jerome Powell during a time when the central bank was raising interest rates, and that really breaks with the president that presidents have embraced of really not publicly criticizing the FED so that it can have that independence to make policy.
Yeah, indeed, it was one of the things that we followed at Bloomberg quite closely some of the commentary that Donald Trump made while he was president about Jerome Powell. I think it's probably fair to say that he's not a fan of the Federal Reserve Chair.
Very fair to say that, as we were just talking about, he very publicly criticized Jerome Powell during his presidential term, and he's already said that if he were to be re elected, he would not reappoint Chair Pale as chair, And very fair to say that they had a testing relationship, at least publicly in the past.
So concretely, what influence can a president exert over the Federal Reserve?
So the biggest influence that a president has is appointments. Right, So there is a board of governors at the Federal Reserve, and when slots come open, the president nominates people to fill those slots. And obviously the Central Bank is very important for the trajectory of the economy. They set interest rates, they can influence the psychology of how people think about
the economy, and so those appointments are very important. And then beyond just the board of governors, the president also nominates from among the governors, nominates people to very important positions, including chair, and there are two vice chair positions on the board as well, so the president gets to influence
the board when those slots come open. Now, those nominees are subject to confirmation by the Senate, so there is a little bit of a check there, But certainly the Senate does try to respect when a president nominates people for the board, to honor the resident's decisions, assuming that those nominees are qualified and all of those things.
So that's the most direct and important way.
But also presidents do try to apply pressure privately.
When they meet with the Fed.
When they talk to the chair of the Fed in private, they express their opinions on the economy and interest rates and other matters that the Fed is dealing with. And so historically we do know that presidents have expressed their preferences and expressed their desires to Fed officials in private as well.
So that's the traditional playbook for how things work between the Federal Reserve and the White House. But is there a potential that if Donald Trump is reelected that he could change the rules, change the playbook. Is this a matter that markets need to be worried about.
Well, I think markets are paying attention, right, because stability, continuity, a belief in the independence of the Federal Reserve is kind of one of the bedrocks of our economy, and so the idea that a president could put me come in and try to undermine some of that, I think would certainly be concerning for markets, particularly the bond market. But when I talk to constitutional scholars and FED historians about this, there are a lot of guardrails around the
FED that does somewhat insulate them from interference. For instance, it is legal scholars tell me very difficult to remove members of the board because of for cause, a clause that is in the Federal Reserve Act, which is the
law that created the Federal Reserve and really governs it. Right, in order to remove a FED governor, they have to do something that is for cause, which is generally thought to mean something that is serious misconduct or malfeasan something like that, And so a lot of legal scholars say, look, it would be very difficult to do that. But again,
Donald Trump is not a traditional person. He was not a traditional president, and so I think that's why some of the speculation comes around whether he might try to do things that haven't been tried in the past.
So that's kind of the concern for markets. Does this issue matter to voters? What has Joe Biden been saying about the Fed?
One thing we do know is that the economy matters a lot to voters this coming presidential election. A lot of Americans are focused on inflation. They're focused on what the FED is doing to bring down inflation. They're focused on this idea that the FED might hold interest rates at this high level where they are now in order to continue to bring inflation down to the Fed's two
percent goal. And so, to the extent that voters care about the FED lowering inflation, bringing some relief on prices to people's budgets and wallets, they're going to care what is happening with the Federal Reserve and.
The dialogue around the Federal Reserve.
Now, Joe Biden has been pretty traditional in his approach to the Federal Reserve. He hasn't really commented publicly on Fed policy or interest rate policy. He has predicted that the FED will cut rates this year. He's predicted that twice, doubling down recently on an earlier comment that he believed that the FED.
Would cut rates so that was a little surprising.
But generally speaking, he hasn't really commented publicly on the FED, and his administration actually recently released a blog post talking about how much they value central bank independence because they believe that ultimately allows for better monetary policy outcomes.
Okay, Amaram Okway, our Federal Reserve reporter, thank you very much for joining us. For more explanations like this from our team of twenty seven hundred journalists and analysts from around the world, search for Quick Take on the Bloomberg website or Bloomberg Business App. I'm Stephen Carol. This is here's why. I'll be back with more next week. Thanks for listening.