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What Happens If Kevin Hassett Becomes Fed Chair? · Trumponomics

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:08
Speaker 2: I guess the potential FED chair is here too.
0:11
Speaker 3: I don't know. Always allowed to say that potential.
0:15
Speaker 2: He's a respected person that I can tell you.
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Speaker 3: Thank you, Kevin. I'm Stephanie Flanders, head of Government and
0:29
Speaker 3: Economics at Bloomberg, and this is trump Anomics, the podcast
0:33
Speaker 3: that looks at the economic world of Donald Trump, how
0:36
Speaker 3: he's already shaped the global economy and what on a
0:39
Speaker 3: is going to happen next. This week we're asking what
0:46
Speaker 3: happens if Kevin Hassett gets the top job at the FED. Well,
0:51
Speaker 3: for those who haven't been following the apprentice like competition
0:55
Speaker 3: for the next chair of the US Central Bank, here's
0:58
Speaker 3: a quick summary. The current chair of the FED, Jerome Powell.
1:02
Speaker 3: His term as chair ends in May next year. There
1:05
Speaker 3: are five candidates on President Trump's shortlist to replace him.
1:10
Speaker 3: We're expecting the President to name his pick in the
1:14
Speaker 3: next few weeks, and last week Bloomberg reported that it
1:16
Speaker 3: was looking very likely to be Kevin Hassett, the current
1:20
Speaker 3: director of Donald Trump's National Economic Council. Well, things might change,
1:24
Speaker 3: of course, we are talking about President Trump, but right
1:27
Speaker 3: now we thought it was worth asking, indeed what a
1:30
Speaker 3: Hasset FED might meet for markets, for the US economy
1:34
Speaker 3: and long term for the Federal Reserve. Whether the worriers
1:38
Speaker 3: about this are right to fret about having a Trump
1:42
Speaker 3: loyalist as the chair of the world's most important central bank. Well,
1:47
Speaker 3: if you're a dedicated listener to this podcast with a
1:49
Speaker 3: good memory, you might remember that our chief US economist,
1:52
Speaker 3: Anna Wong has thought for a while that President Trump
1:55
Speaker 3: was most likely to pick Kevin Hassett, with whom she
1:58
Speaker 3: worked in the first Trump administration on the Council of
2:02
Speaker 3: Economic Advisors. Well, here exactly why she thought Kevin Hassett
2:07
Speaker 3: was the most likely in a moment, but I might
2:09
Speaker 3: point out that Kevin hasse seems to have a good
2:11
Speaker 3: opinion of Anna wall That might be one reason why
2:14
Speaker 3: he was willing to sit down for a forty five
2:15
Speaker 3: minute conversation with her at a recent Bloomberg event we
2:18
Speaker 3: had in Washington. You could look it up on YouTube.
2:21
Speaker 3: I would say it is in some parts quite a
2:24
Speaker 3: nerdy chat between two economists. But on the subject of
2:28
Speaker 3: the FED, Kevin Hassett did make the point that it's
2:31
Speaker 3: not anything new to have a member of the president's
2:33
Speaker 3: team move over to a senior role at the FED.
2:37
Speaker 4: I think the idea that government service makes it less
2:41
Speaker 4: likely that you'll pursue an independent FED basically rejects the
2:46
Speaker 4: evidence of what is it the five Council of Ecadomic
2:49
Speaker 4: Advisor chairfs that went on to be independent FED people.
2:52
Speaker 4: And so I think it's a very common path for
2:55
Speaker 4: people who have worked in the White House to go
2:56
Speaker 4: on and to work well at the FED, and to
2:59
Speaker 4: do so independently.
3:00
Speaker 3: Well. Anna is joining me now from our New York office,
3:03
Speaker 3: as is senior Washington reporter Seleia Mostly, who was the
3:06
Speaker 3: one who reported last week that Hassett was now top
3:09
Speaker 3: of the president's list. Anna, Celia, great to have.
3:12
Speaker 2: You, good to be here.
3:14
Speaker 1: Good to see you.
3:19
Speaker 3: Now, Seleia. Obviously you can't reveal what led you directly
3:23
Speaker 3: to write your story the other day. He's really been
3:27
Speaker 3: high on most people's lists for a while. Why did
3:29
Speaker 3: you press the button on saying you really thought it
3:33
Speaker 3: was looking like him?
3:34
Speaker 1: It's been an interesting year when it comes to just
3:37
Speaker 1: the FED chair selection process, if we just narrow that
3:40
Speaker 1: lens right there. So Bloomberg News has been ahead of
3:42
Speaker 1: the curve on this reporting in June, one of our colleagues,
3:45
Speaker 1: Nancy Cook and Katerinas Arieva, reported that Kevin Hassett had
3:50
Speaker 1: a great interview with Trump. They discussed the FED inside
3:53
Speaker 1: the White House, the chairmanship role, and that's when things
3:57
Speaker 1: started to kind of shift. The other part of the
3:59
Speaker 1: narrative is that Trump does not like that there are
4:02
Speaker 1: agencies that are outside of executive branch control. And now
4:06
Speaker 1: he's been looking for many, many months, and you could
4:09
Speaker 1: say years, at how he can exert some control over
4:11
Speaker 1: the Federal Reserve. Now, traditionally that is done through personnel.
4:15
Speaker 1: Any sitting president has the ability to choose who fills
4:20
Speaker 1: the FED Board of Governors, including the chair, and Trump
4:23
Speaker 1: is using those ways into the FED to put a
4:27
Speaker 1: loyalist in.
4:28
Speaker 3: We're speaking now on Tuesday, the second of December. It's
4:32
Speaker 3: been around in a week since you wrote that Kevin
4:36
Speaker 3: has it was looking very likely. Has anything happened in
4:39
Speaker 3: the last few days, any of the comments from the
4:41
Speaker 3: President that we've heard made you change your mind or
4:45
Speaker 3: think mcgrian might be moving again.
4:47
Speaker 1: If anything, the public perception matches my own perception, which
4:51
Speaker 1: is that I feel like our report is even more
4:54
Speaker 1: accurate this past Sunday, Kevin Hassett was on CBS's Face
4:58
Speaker 1: the Nation, and at the end of that inner view,
5:01
Speaker 1: he was asked directly if the Bloomberg report was accurate,
5:04
Speaker 1: and he had a big smile on his face. Did
5:07
Speaker 1: yours go?
5:09
Speaker 5: You know, I am, I'm not sure that Blueberg has
5:13
Speaker 5: a story right. I'm really honored to be amongst a
5:15
Speaker 5: group of really great candidates.
5:17
Speaker 3: Excellent lament for the person.
5:18
Speaker 1: He had a big smile on his face and he said, no,
5:23
Speaker 1: I don't know that that report is completely accurate. But
5:26
Speaker 1: then he points to the positive market reaction.
5:29
Speaker 5: If you look at the market response to that, it
5:31
Speaker 5: was very, very positive. We had a great treasury auction.
5:34
Speaker 5: Interest rates went down, and so I think that the
5:36
Speaker 5: American people could expect President Trump to pick somebody who's
5:39
Speaker 5: going to help them, you know, have cheaper car loans
5:42
Speaker 5: and easier access to mortgages at lower rates.
5:45
Speaker 1: He had key bullet points on what happened in markets
5:48
Speaker 1: once that story hit the wires, and the one question
5:52
Speaker 1: around Hassett and whoever Trump may choose for FED chair
5:56
Speaker 1: has been can this person maintain credibility with markets but
6:01
Speaker 1: still be able to cope with a president Trump, who
6:05
Speaker 1: was also in the world and who could be calling
6:07
Speaker 1: him a stubborn ox or a bonehead at any given point,
6:10
Speaker 1: things that Trump has done to j Powell, the current
6:13
Speaker 1: FED chair, that moment on face the nation, in the
6:16
Speaker 1: fact that the White House, in our story on the record,
6:19
Speaker 1: there was no pushback. It was just, well, Trump's going
6:21
Speaker 1: to pick, who's going to pick when he's ready.
6:23
Speaker 3: It sounds like he was even trying to make sure
6:26
Speaker 3: there would be any change of mind, to try and
6:28
Speaker 3: remove any last bit of doubt from President Trump's mind.
6:31
Speaker 3: I mean, Anna, I mentioned you've always said you thought
6:35
Speaker 3: so that the most likely pick. Knowing how you experienced
6:39
Speaker 3: you'd had in the Trump administration, and knowing that the
6:43
Speaker 3: various candidates as you did, why did you think he
6:46
Speaker 3: was always the most likely?
6:47
Speaker 2: Yeah.
6:48
Speaker 6: So the candidate we have in the pool of people
6:53
Speaker 6: auditioning for this role are Kevin has It, Kevin Walsh,
6:58
Speaker 6: Chris Waller, Bowman. But our criteria, my criteria for Trump's
7:04
Speaker 6: pick is number one, loyalty, as you said, Celenia, and
7:08
Speaker 6: on that count, Kevin has scored the highest amongst this
7:12
Speaker 6: entire pool of candidate because he has a long working
7:16
Speaker 6: relationship with Trump, and he delivered some of the key
7:20
Speaker 6: legislation that Trump is most proud of, the text Jobs
7:24
Speaker 6: and Cuts Act, that is a major Coudle points to
7:29
Speaker 6: Kevin has It. He not only helped craft it, he
7:32
Speaker 6: also messaged it, He also marketed. He also fought for it,
7:36
Speaker 6: and afterwards he also defended it. And also during the coronavirus,
7:41
Speaker 6: Kevin has It came back and partly reflecting his loyalty
7:46
Speaker 6: and also patriotism, maybe because the reason why he left
7:51
Speaker 6: CEA was because he was working long hours. This was
7:54
Speaker 6: all detailed in his twenty twenty one memoir The Drift.
7:58
Speaker 6: So in that book he talked about how he was
8:00
Speaker 6: working sixty eighty hours every day in Cia and then
8:04
Speaker 6: he suddenly felt this heart tightness in the chest. Well,
8:09
Speaker 6: he drove himself to the hospital and turned out he
8:12
Speaker 6: was having some kind of heart attack, and that was
8:14
Speaker 6: why he has to you know exit. The reason why
8:17
Speaker 6: he quietly drove himself to the hospital was he also
8:20
Speaker 6: didn't want to attract any fanfare. He wrote in the book,
8:23
Speaker 6: how like the media would have so much to write
8:26
Speaker 6: about if they caught win of him, you know, having
8:29
Speaker 6: this episode. So fast forward to the second Trump He
8:32
Speaker 6: also helped message this.
8:34
Speaker 2: One big, beautiful bill.
8:36
Speaker 6: And the role of National Economic Council Director is more
8:41
Speaker 6: influential than the CEA chair in the sense that you
8:44
Speaker 6: are actually helping to create an usher do policy, where
8:48
Speaker 6: CEA oftentimes the chair was.
8:51
Speaker 2: It serves more like a think tank within the White.
8:54
Speaker 3: House, a bit more academic.
8:55
Speaker 6: Yes, yeah, so in a way for any economist who
8:58
Speaker 6: dreamed about having luins over how policies are crafted, this
9:04
Speaker 6: has its role. His role is definitely more elevated in
9:08
Speaker 6: this second Trump, which suggests to me that he in
9:12
Speaker 6: Trump's mind, he is asked that his status as an
9:15
Speaker 6: economy is also much higher.
9:17
Speaker 3: I suspect that his book is going to be rising
9:20
Speaker 3: in the Amazon charts given the recent stories. Everyone's going
9:24
Speaker 3: to be reading that. I was not aware of that story,
9:26
Speaker 3: but it does make some sense out of one of
9:28
Speaker 3: the exchanges you had in this conversation at Bloomberg at
9:31
Speaker 3: the Washington offices a few weeks ago, where you talked
9:34
Speaker 3: about how he would maybe have few hours if he
9:37
Speaker 3: went to the FED. But you talked about a lot
9:39
Speaker 3: of things in that conversation. He talked about tariffs, talked
9:41
Speaker 3: about the budget. He was very on message, you would say,
9:44
Speaker 3: from a sort of Trump perspective, did anything he say
9:47
Speaker 3: make you change your view of what a Hasset led
9:51
Speaker 3: Federal Reserve would look like? How he might affect the FED.
9:54
Speaker 6: I think one of the biggest issue facing the next
9:57
Speaker 6: FED chairman and the FED overall is to determine whether
10:01
Speaker 6: we are indeed going through a productivity boom, because productivity
10:06
Speaker 6: boom does not show up in macro data cleanly. It
10:09
Speaker 6: just doesn't, and in the nineteen nineties it takes several
10:12
Speaker 6: years and after rounds of revisions before it became apparent.
10:16
Speaker 6: And in that conversation with Hasset, he seemed very aware
10:20
Speaker 6: of that. In fact, I thought he went a little
10:23
Speaker 6: bit way too enthusiastic about accepting that the productivity boom
10:28
Speaker 6: is already here.
10:30
Speaker 4: One of the interesting puzzles is that first, we're having
10:35
Speaker 4: a productivity boom that is really unprecedented in the following
10:39
Speaker 4: sense that when I worked with Alan Greenspan back in
10:42
Speaker 4: the nineties, it was just at the dawn of the
10:45
Speaker 4: computer age.
10:46
Speaker 6: Really, Whereas in fact, I think it is a very
10:49
Speaker 6: polarizing issues among economists because if you survey all economists,
10:53
Speaker 6: half of them would say there's no productivity boom. So
10:56
Speaker 6: I think that it could be very quite likely be
11:00
Speaker 6: that Kevin has it is right that a productivity boom
11:04
Speaker 6: is happening unbeknownst to many macroeconomists.
11:08
Speaker 3: But I think it's also.
11:09
Speaker 6: Important for a future FED chair to acknowledge the lack
11:15
Speaker 6: of evidence and try to like bridge together, you know,
11:20
Speaker 6: a consensus amongst people who think differently.
11:24
Speaker 3: There was an interesting moment in that interview. He said,
11:27
Speaker 3: you know, there's nothing particularly special about having a political
11:30
Speaker 3: you know, it's obviously it is a political appointment. And
11:32
Speaker 3: you've had economists move over from the White House to
11:35
Speaker 3: run the FED before, which is absolutely true. But in
11:39
Speaker 3: the past that hasn't been after a very or not
11:42
Speaker 3: in recent times, that hasn't been after a very public
11:45
Speaker 3: row between the White House and the FED, or a
11:47
Speaker 3: disagreement that the White House has had about FED policy
11:51
Speaker 3: which the candidate has actively sided with the president on.
11:56
Speaker 3: And I just wonder from your perspective, I mean, you
11:58
Speaker 3: talk to people across the economic world and markets as
12:02
Speaker 3: well as Washington, how tainted do you think Kevin has
12:07
Speaker 3: its arguments are going to be when he puts these
12:10
Speaker 3: kind of lines that support in effect the president's desire
12:14
Speaker 3: to have lower interest rates.
12:16
Speaker 2: That's an interesting question.
12:17
Speaker 1: I would have assumed that when Stephen Myron was nominated
12:21
Speaker 1: to take the short term slot that opened up on
12:24
Speaker 1: the FED board when Adriana Kougler resigned, I thought that
12:28
Speaker 1: markets would have a big tantrum and that the Senate
12:31
Speaker 1: Banking Committee would also have a big tantrum over Stephen
12:34
Speaker 1: Myron going straight from the CEA to the FED on
12:38
Speaker 1: leave from.
12:39
Speaker 2: The White House for that role.
12:41
Speaker 1: And there was not a blink from anyone.
12:43
Speaker 2: Really.
12:44
Speaker 1: There was a couple of tense moments ooh in the
12:46
Speaker 1: Senate during the hearing, right nothing really. Markets were also
12:49
Speaker 1: fine with it. So we're seeing that either the FED
12:54
Speaker 1: is like in a too big to fail category, where
12:56
Speaker 1: like it's not possible that we start questioning their credibility
12:59
Speaker 1: because the world cannot handle it. Therefore, we just will
13:04
Speaker 1: keep rolling with it. And so Hassett gets through the Senate.
13:08
Speaker 1: Mark Warnerer, a senator on the Banking Committee, was at
13:11
Speaker 1: the Bloomberg Washington office recently, and this is before reading
13:15
Speaker 1: that Hassett was a front runner, and he did remark
13:18
Speaker 1: that I have a good relationship with Kevin Hasset. Warner
13:21
Speaker 1: as a Democrat, right, So Hassett has relationships on both
13:23
Speaker 1: sides of the aisle. The Senate does like to respect
13:26
Speaker 1: any president's wishes when it comes to personnel. He has
13:29
Speaker 1: the right to he or she has the right to
13:31
Speaker 1: choose who should be nominated. They vet everyone. Now the
13:34
Speaker 1: Senate has failed on certain events because we're seeing that
13:37
Speaker 1: there's some ethics scandals that keep kind of popping up
13:39
Speaker 1: at the FED, and maybe the Senate hasn't grilled candidates enough.
13:43
Speaker 1: There's questions around other FED appointees from the Biden era
13:47
Speaker 1: of who ended up at the FED and if they
13:49
Speaker 1: were fully qualified. Things like that are coming up in
13:51
Speaker 1: the ether. But if we have Kevin Hassett become FED chair,
13:57
Speaker 1: that means he's Marcus have now absorbed it right. He
14:00
Speaker 1: was right to point out there was no big reaction.
14:02
Speaker 1: That's a big plus for him. Now it's up to
14:04
Speaker 1: the Senate to properly vet him, but his credibility is there.
14:08
Speaker 1: Once he's in the chair seat, he has a whole
14:12
Speaker 1: FMC board. There are defense mechanisms at the FED in
14:16
Speaker 1: place to deal with any kind of efforts to politicize
14:20
Speaker 1: the FED. Now, Trump is a very strong adversary on
14:24
Speaker 1: that front. But now we are testing those defense mechanisms
14:28
Speaker 1: across the United States, across democracy, across the capital, and
14:33
Speaker 1: now it's making it to the Eccles building.
14:36
Speaker 3: And you make the point, his is only one voice.
14:39
Speaker 3: It's a very consensus based organization, and the know as well,
14:43
Speaker 3: and you don't, you don't tend to have a lot
14:46
Speaker 3: of dissent, but his will only be one vote. So
14:50
Speaker 3: I guess one of the key things that people are
14:52
Speaker 3: looking at is whether the president, either directly or indirectly,
14:57
Speaker 3: gets to change the broader makeup of the board. And
15:01
Speaker 3: there obviously we had this important case coming up or
15:04
Speaker 3: judgment coming up with the Supreme Court. So just remind
15:07
Speaker 3: us where we stand on that, because there's a sort
15:09
Speaker 3: of key aspect of quite how many slops the president
15:14
Speaker 3: might end up being able to fill.
15:16
Speaker 2: Right.
15:16
Speaker 1: So the summer, like I said, was really interesting, and
15:20
Speaker 1: June it was the Okay, Hassett has a great, you know,
15:23
Speaker 1: knock it out of the park interview with Trump. In July,
15:27
Speaker 1: we see the Bill Poulty, the FHFA director. For some reason,
15:32
Speaker 1: he comes out with comments against Powell, saying that he
15:35
Speaker 1: should be tried in the courts or rejected from his
15:38
Speaker 1: job for the way that the FED has spent on
15:41
Speaker 1: some of the renovations. And then by early August, Poulty
15:45
Speaker 1: had made public some very old mortgage documents belonging to
15:49
Speaker 1: Lisa Cook, a Biden appointee to the FED Board, that
15:52
Speaker 1: there are some discrepancies in there. And then Trump puts
15:55
Speaker 1: out a post on truth Social that says I'm firing
15:59
Speaker 1: Lisa Cook for pause because she should not have this.
16:01
Speaker 2: Job if she has been violating mortgage laws.
16:04
Speaker 1: And it turns out that there's some intricacies there, the
16:07
Speaker 1: purp violations happened before she was Fed governor, and that
16:10
Speaker 1: maybe they were actually above board. So that case has
16:13
Speaker 1: gone to the Supreme Court. Trump right now is not
16:15
Speaker 1: able to block her and remove her from the Fed.
16:18
Speaker 3: We have a.
16:19
Speaker 1: Hearing in January mid January where the Supreme Court will
16:23
Speaker 1: hear oral arguments. We're going to hear a little bit
16:25
Speaker 1: more about that. The other very exciting thing that happened
16:28
Speaker 1: in August, around the time that the Lisa Cook attempt
16:31
Speaker 1: at firing happened, was that Audrina Kugler, also a Biden
16:35
Speaker 1: appointee to the FED Board, resigned abruptly so that is
16:40
Speaker 1: the slot that Steve Myron has taken that expires end
16:44
Speaker 1: of January early February. And if it is Hassett who
16:49
Speaker 1: gets the nomination for chair, that is probably the slot
16:52
Speaker 1: that he gets is the seat that now Steve Myron holds.
16:56
Speaker 2: And then we have the excitement of j.
16:58
Speaker 1: Powell because his chairmanship ends in May, but his term
17:03
Speaker 1: as a governor he has two more years on it.
17:06
Speaker 2: Now.
17:06
Speaker 1: Traditionally usually you will see a chair just completely step down.
17:11
Speaker 1: Palell has been through a lot. He has publicly been
17:13
Speaker 1: called names by the President of the United States. It's
17:17
Speaker 1: not an easy thing. I think it's taken a toll
17:19
Speaker 1: on him and maybe even his family. He has refrained
17:23
Speaker 1: from saying whether he will step down, and you just
17:26
Speaker 1: have to wonder is he just waiting to see who
17:30
Speaker 1: is the pick and how does those first few weeks
17:34
Speaker 1: or first few months pan out before he decides leave,
17:37
Speaker 1: or he could say I'm just a governor. I'm not
17:40
Speaker 1: going to head up any committees. I'm in my office
17:42
Speaker 1: and I'll show up when I need to go to
17:46
Speaker 1: an FMC meeting and deal with Hassett.
17:51
Speaker 3: And that you mentioned it and the piece you wrote
18:03
Speaker 3: about what a hasse FED would look like you highlight
18:07
Speaker 3: that there are more significant shifts of direction of bed
18:11
Speaker 3: that you could see if you saw a further step
18:15
Speaker 3: or down this road, which is a potential change in
18:18
Speaker 3: the regional fed governors.
18:20
Speaker 6: Yes, so regional FED presidents they get reappointed by the
18:24
Speaker 6: Board of Governors. So there are seven individuals on the
18:28
Speaker 6: Board of the Governors and there are twelve regional presidents.
18:32
Speaker 6: And the deadline usually is by the end of February
18:37
Speaker 6: of every year that ends either at twenty twenty six
18:41
Speaker 6: or twenty thirty one in five year increments. So there's
18:44
Speaker 6: an opportunity for Trump if he wants to, you know,
18:49
Speaker 6: if he somehow could get at least four people on
18:52
Speaker 6: the Board of Governors to reject the reappointment of some
18:57
Speaker 6: of these regional fed The opening is twenty twenty sixth February.
19:02
Speaker 6: So this is why the timing of that Lisa Cook
19:05
Speaker 6: case is extremely important. So if the hearing happens in
19:09
Speaker 6: mid January, as Slea said, then the ruling likely will
19:13
Speaker 6: come way after January, after the deadline for this re appointment,
19:18
Speaker 6: which means that likely Lisa Cooke would stay in place
19:23
Speaker 6: until at least February of twenty twenty six. So regardless
19:27
Speaker 6: of what the Supreme Court does, just because the ruling
19:31
Speaker 6: will happen after February, it's unlikely that Trump will have
19:36
Speaker 6: the four votes on the board to be able to
19:39
Speaker 6: remove regional FED presidents.
19:42
Speaker 3: So, Silih, there was one thing that you've been talking
19:44
Speaker 3: about that I thought was interesting, And it's very much
19:46
Speaker 3: part of the President's kind of modus operandi that he
19:49
Speaker 3: will spot something where some opinion is kind of quietly
19:54
Speaker 3: changing behind the scenes, but he takes it further. You've
19:58
Speaker 3: been spotting a bit of that when it comes to
20:00
Speaker 3: the FED in the possible future direction of the FED.
20:03
Speaker 1: Yeah, you know, we are at a point in American
20:05
Speaker 1: history where the public's trust of public institutions is that
20:10
Speaker 1: historic lows. And whether the average American thinks about the
20:15
Speaker 1: FED very often hopefully they don't. The Federal Reserve is
20:18
Speaker 1: part of that low, that lack of trust, and some
20:21
Speaker 1: of that has to do, of course, with just the
20:23
Speaker 1: continued hangover from the global financial crisis that oh, everyone
20:26
Speaker 1: got these golden parachutes, the FED bailed everyone else out
20:29
Speaker 1: except for the average man, and we're still stuck in
20:32
Speaker 1: the muck.
20:32
Speaker 3: And they had one job, which was to prevent inflation,
20:35
Speaker 3: and they failed on that.
20:36
Speaker 1: Well, let's talk about that one, because we are at
20:38
Speaker 1: a point where the whole generation, my generation didn't know
20:41
Speaker 1: what it was like to face inflation, because the last
20:44
Speaker 1: time was around the time I was born.
20:45
Speaker 2: In the early eighties.
20:46
Speaker 1: You have a generation that has never seen this. And
20:49
Speaker 1: then you have policymakers who at the time it was
20:52
Speaker 1: Janet Allen, the treasure secretary under Biden and j Powell.
20:55
Speaker 1: You had Janet Allen speaking as a Treasury secretary but
20:59
Speaker 1: sounding like a Fed official a FED chair, saying this
21:02
Speaker 1: is transitory, and Powell also saying this is transitory. And
21:06
Speaker 1: what that means is that the family at the grocery
21:10
Speaker 1: store checkout that has to decide do we complete our
21:12
Speaker 1: food shopping or do we buy another pair of cleat
21:15
Speaker 1: soccer cleats for our growing teenage boy. We can't afford both.
21:19
Speaker 1: When someone says transitory, they're saying your pain is going
21:22
Speaker 1: to pass. It's not a big deal. So trust plummeted
21:25
Speaker 1: even more, and so it is natural for elected leaders
21:29
Speaker 1: to take a look and say, what went wrong here?
21:32
Speaker 1: How can we do better? When it comes to trust
21:34
Speaker 1: in this institution that is so important to America's economic
21:38
Speaker 1: well being, in the world's economic wellbeing. So Trump has
21:41
Speaker 1: picked up on this angst and this unhappiness with how
21:44
Speaker 1: this is working, but in his own way, which ends
21:48
Speaker 1: up being belligerent, is trying to fix it.
21:51
Speaker 3: Anna. Obviously, the irony of this quite positive reading of
21:55
Speaker 3: how you might interpret the direction the president's taking. He's
21:59
Speaker 3: not just religuing. He's trying to push for lower rates
22:03
Speaker 3: in an environment where people have lost their fait in
22:08
Speaker 3: the central bank in large part because of their failure
22:12
Speaker 3: to control inflation. So this just it seems like a
22:16
Speaker 3: potential recipe for not answering those concerns and actually, if anything,
22:21
Speaker 3: making it worse.
22:23
Speaker 6: I believe President Trump has mentioned, who wants rates to
22:26
Speaker 6: be cut down to one percent?
22:29
Speaker 3: When you put one percent in one of your models,
22:31
Speaker 3: what does that do to inflation? Just to remind us.
22:35
Speaker 6: So, first of all, you will have a temporary boom
22:38
Speaker 6: through twenty twenty seven, So twenty twenty six and twenty
22:42
Speaker 6: twenty seven more than three four percent GDP growth, Inflation
22:47
Speaker 6: probably will most likely will exceed three percent, probably rising
22:52
Speaker 6: to three point five percent. You know, on that trajectory,
22:56
Speaker 6: and by twenty twenty eight could be that inflation expectations
23:01
Speaker 6: would un anchor a little bit and you'll see credit
23:04
Speaker 6: spreads all rising, and inflation compensation on the longer end
23:10
Speaker 6: of the health curve probably would rise, and all that
23:13
Speaker 6: would lead to a If the FED has not even
23:17
Speaker 6: get in front of this deterioration, it will probably means
23:21
Speaker 6: the FED will have to raise rate by even more
23:23
Speaker 6: in order to get inflation expectations back in control. So
23:27
Speaker 6: that would be the boom and bust cycle, classic boom
23:31
Speaker 6: and bust cycle.
23:33
Speaker 3: But the best that you've just described would be just
23:36
Speaker 3: thinking about the electoral cycle would be amazed, probably after
23:40
Speaker 3: the presidents.
23:41
Speaker 6: Sometime around there. But I also have to say, Stephanie,
23:44
Speaker 6: that that assumes productivity didn't pick up tremendously. And I
23:48
Speaker 6: think one view that Kevin has it would be carrying
23:52
Speaker 6: with him into the FED. It would be his conviction
23:56
Speaker 6: that a productivity boom is happening.
23:58
Speaker 3: You know, we had this conversation around the impact of
24:00
Speaker 3: tariffs a couple of weeks ago, and we made the
24:03
Speaker 3: point that AI and Big AI investments had in some
24:07
Speaker 3: sense protected the economy from some of the negative effects
24:12
Speaker 3: or offset some of the negative effects of TAROT, but
24:15
Speaker 3: Kevin Hassett would say they pointed to a real productivity
24:20
Speaker 3: turnaround that was going to support the economy and make
24:23
Speaker 3: it possible to have faster growth and lower inflation even
24:27
Speaker 3: with lower interest rates. So how much credence do you
24:29
Speaker 3: give in that scenario, that kind of positive AI revolution scenario.
24:35
Speaker 6: I think most likely what we'll see if there is
24:38
Speaker 6: going to be a productivity boom, would be weak employment
24:42
Speaker 6: for a couple of years, because a labor productivity boom
24:47
Speaker 6: implies you have higher output per worker, So you could
24:50
Speaker 6: have higher output and reduce need for workers, which is
24:54
Speaker 6: what we are seeing already reduced need for entry level workers.
24:58
Speaker 6: And in fact, I just came back from around table
25:00
Speaker 6: today and I saw some very compelling data that shows
25:04
Speaker 6: the right slow down and employment growth for entry level
25:08
Speaker 6: people in their twenties. That kind of jobs slowed exactly
25:12
Speaker 6: around the time where chat GBT was introduced. So I
25:16
Speaker 6: think my own forecast is that likely in the next
25:20
Speaker 6: year we will see pretty weak non figm payroll growth
25:24
Speaker 6: every month, and I think that will give an opening
25:29
Speaker 6: for the FED to keep cutting rates, because as part
25:33
Speaker 6: of the productivity, the process of increasing productivity there will
25:37
Speaker 6: be at first slowed down in employment, and only afterwards
25:41
Speaker 6: when firms have increased profits from this productivity growth they
25:46
Speaker 6: would invest more. So far has been very concentrated in AI.
25:50
Speaker 6: We will need a broadening of this investment boom into
25:54
Speaker 6: many other sectors in order to be convinced that it's
25:59
Speaker 6: really a total factor of productivity boom. And even that
26:03
Speaker 6: is not a sure thing because in the nineteen nineties
26:06
Speaker 6: a real wage is actually stagnated even amidst this productivity boom.
26:10
Speaker 6: So I just think that the AI element will play
26:14
Speaker 6: a key role in determining the path of a FED
26:18
Speaker 6: funds rate the next couple of years.
26:20
Speaker 3: Continued AI enthusiasm but weak employment growth could potentially enable
26:26
Speaker 3: the FED to cut more than we currently expect in
26:29
Speaker 3: the first half of next year. But do you think,
26:32
Speaker 3: going back to my original point about credibility, do you
26:35
Speaker 3: think that Kevin has it if he were coming into
26:38
Speaker 3: his first meeting in June as chairman of the Federal Reserve,
26:45
Speaker 3: that he could get the majority of the board to
26:49
Speaker 3: support a rate cut.
26:52
Speaker 6: Well, if Kevin has it, does enter the FED in
26:55
Speaker 6: January first as a governor to take over the position
26:59
Speaker 6: that Steve Myron FA Kate. Then he has about five
27:03
Speaker 6: months to prove himself to the FED staff and FOMC
27:08
Speaker 6: members to build his soft power, because ultimately the most
27:12
Speaker 6: important trait of a FED chairman is soft power. The
27:17
Speaker 6: FOMC has oftentimes been divided in the past. So the
27:21
Speaker 6: division that people talk about today and for this FOMC
27:24
Speaker 6: meeting next week, for example, where half of the committee
27:28
Speaker 6: wants to cut, half of them do not want to cut. Well,
27:31
Speaker 6: that kind of division we have seemed before in the
27:33
Speaker 6: nineteen nineties, in the nineteen ninety five during the green
27:36
Speaker 6: Span era, and we also saw it last year September
27:40
Speaker 6: twenty twenty four when the committee was split between cutting
27:44
Speaker 6: fifty BIPs versus twenty five fits. And the common denominator
27:49
Speaker 6: there is you need a chairman who can shepherd everyone
27:54
Speaker 6: toward the view he prefers. And in Kevin Has its case,
27:59
Speaker 6: If Has colleagues were to view him with skepticism or
28:03
Speaker 6: view his every action as a covert, as he being
28:07
Speaker 6: a proxy for Trump, they are not going to go
28:11
Speaker 6: along with him. And so ultimately it is soft power
28:15
Speaker 6: that matters. And by the way, many of the governors
28:19
Speaker 6: and also regional FED presidents will be staying around until
28:24
Speaker 6: the twenty thirties, well after even the Trump administration. The
28:29
Speaker 6: regional FED presidents, many of them are very young in
28:33
Speaker 6: their fifties.
28:34
Speaker 3: If they don't get kicked out, yes.
28:35
Speaker 6: But again, if they missed the February twenty twenty six window,
28:39
Speaker 6: the next opportunity is twenty thirty one. So it's very
28:44
Speaker 6: likely all of these hawks, young hawks, mind you, they're
28:48
Speaker 6: going to be hanging around. So I think it's really
28:51
Speaker 6: up to Kevin has its soft power to convince everyone,
28:55
Speaker 6: and I think one thing in favor of his likelihood
28:59
Speaker 6: of is that he used to be a FED staff
29:02
Speaker 6: and he actually does know several senior people now in
29:06
Speaker 6: the FED board. So out of the candidates that we
29:10
Speaker 6: talked about earlier, he is the only one who had
29:14
Speaker 6: worked at the FED, So I think from the Fed's perspective,
29:19
Speaker 6: they would rather have him than the other ones.
29:23
Speaker 3: Anyone listening who wants to get a flavor of some
29:26
Speaker 3: of the behind the scenes data analysis that Kevin Hassett
29:31
Speaker 3: did as a staff at the FED, you should go
29:33
Speaker 3: on YouTube and dig out the conversation he had with
29:36
Speaker 3: Anna One because they got well into some of those
29:38
Speaker 3: debates as well as broader topics on the fed's independence. Anna,
29:42
Speaker 3: that was terrific. Thank you very.
29:44
Speaker 2: Much, great to have you on, happy to be here.
29:47
Speaker 3: And celaire as always a.
29:48
Speaker 2: Pleasure, wonderful. Thank you for having me.
29:50
Speaker 3: As always, Thanks for coming on, Thanks for listening to
30:05
Speaker 3: Trumponomics from Bloomberg. It was noted by me, Stephanie Flanders,
30:08
Speaker 3: and I was joined by Anna Wong and Celia Mosen.
30:11
Speaker 3: Trumponomics was produced by Sammersadi and Moses and with help
30:15
Speaker 3: from Amy Keene and special thanks this week to Stacey
30:18
Speaker 3: Wong and Dash Bennett. Sound designed by Blake Maples and
30:22
Speaker 3: Kelly Gary and Sage Bowman is Bloomberg's head of podcasts.
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