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Trump's Big Gamble on a New Fed Chief · Trumponomics

• 0:03
  Speaker 1: He's strong, he's committed, he's smart, and if he is
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  Speaker 1: confirmed by the Senate, J will put his considerable talents
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  Speaker 1: and experience to work leading our nation's independent central bank,
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  Speaker 1: which has the critical responsibility to set monetary policy and
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  Speaker 1: monitor our banking system as a hall. That was President
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  Speaker 1: Donald Trump last week introducing Jerome Powell, also known as
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  Speaker 1: J as his nominee for Chairman of the Federal Reserve,
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  Speaker 1: America's Central Bank. Now as qualified as Mr Powell is,
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  Speaker 1: what Trump didn't talk about is just why he needed
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  Speaker 1: to replace Janet Yellen, whom Trump also described in the
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  Speaker 1: same event as having done a quote terrific job. Surprise.
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  Speaker 1: It's really a political decision, replacing a Democrat with a Republican,
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  Speaker 1: and one that could have major ramifications not just for
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  Speaker 1: the United States but the entire world. Welcome to Benchmark.
• 1:08
  Speaker 1: I'm Scott Landman, an economics editor with Bloomberg in Washington.
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  Speaker 1: Dan Moss is off this week, but joining me as
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  Speaker 1: a guest co host is my colleague Chris Conton, who
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  Speaker 1: covers the Fed for Bloomberg. Chris, thanks for joining us today.
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  Speaker 1: Very happy to be here, Scott. Now, before we bring
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  Speaker 1: in our guest, I want to ask you a question, Chris,
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  Speaker 1: what makes this appointment for FED chairman different from others
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  Speaker 1: in the past forty years. Well, really, the first thing
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  Speaker 1: that jumps out is that Trump has thrown out this
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  Speaker 1: tradition of renominating FED chairs after they've had only one
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  Speaker 1: term if they've been reasonably successful. That was the case
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  Speaker 1: with his immediate predecessors to Janet Yellow and Ben Bernanky
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  Speaker 1: got a couple of terms. Even though he was first
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  Speaker 1: nominated by a Republican, Obama then renominated him. Greenspan also
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  Speaker 1: had several terms. So that's the first thing that really
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  Speaker 1: jumps out. Trump, perhaps not surprisingly, has thrown out a
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  Speaker 1: bit of Washington tradition here. All right, Well, we're definitely
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  Speaker 1: going to hit on that with our guest and and
• 2:08
  Speaker 1: talk a little bit more about how this could alter
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  Speaker 1: the course of the FED and the global economy. Peter
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  Speaker 1: Conty Brown is Assistant professor of Legal Studies and Business
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  Speaker 1: Ethics at the Wharton School of the University of Pennsylvania.
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  Speaker 1: But more relevant for us, one of his key research
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  Speaker 1: areas is the history of the FED and how it operates.
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  Speaker 1: He's the author of the book The Power and Independence
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  Speaker 1: of the Federal Reserve and he's speaking with us from
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  Speaker 1: Philadelphia today. Peter, thanks for joining us. It's a pleasure. Peter.
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  Speaker 1: Let's talk about what Chris was mentioning a little more.
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  Speaker 1: This is the first time a FED chair whose performance
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  Speaker 1: wasn't questioned hasn't been renominated, or at least the first
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  Speaker 1: time in recent history. Janet Yellen's performance, you know, it
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  Speaker 1: wasn't like they had to force her out. What does
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  Speaker 1: this all mean, Well, I would say it's a starker
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  Speaker 1: example of partisanship at the FED. Beginning of the nineteen fifties,
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  Speaker 1: when Dwight Eisenhower renominated Harry Truman's pick for the FED chair,
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  Speaker 1: that's William mc chesney Martin, we've had a near constant
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  Speaker 1: norm and understanding that the president will look at the
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  Speaker 1: FED and tread lightly from a partisan perspective. And the
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  Speaker 1: only exception to that was when we had Arthur Burns,
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  Speaker 1: who was a Republican who was a close confident of
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  Speaker 1: Richard Nixon. In the near immediate aftermath of Watergate, Jimmy
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  Speaker 1: Carter did decide to go with a Democrat rather than
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  Speaker 1: renominating him. But even Burns served two full terms, right,
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  Speaker 1: So the fact that Janet Yellen with the best top
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  Speaker 1: line numbers of any FED chair. By that I mean
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  Speaker 1: lowest unemployment, lowest inflation, only served one term is pretty staggering.
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  Speaker 1: This is a This is a new, unprecedented move that
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  Speaker 1: President Trump made. Now, even though Mr Powell himself is
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  Speaker 1: not considered a dangerous pick, he was probably regarded as
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  Speaker 1: the safest of the people who were candidates to replace
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  Speaker 1: Janet Yelling. I hear you kind of saying that this
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  Speaker 1: is a gamble historically speaking for the president, would you
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  Speaker 1: put it that way? I I don't know how much
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  Speaker 1: of a gamble it is from his perspective. It certainly
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  Speaker 1: is from from an external perspective. For his perspective, is
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  Speaker 1: is pretty consistent. The President Trump is not one to
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  Speaker 1: make much of the norms and traditions of Washington politics,
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  Speaker 1: and this, this idea of cross partisan reappointment of a
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  Speaker 1: FED chair is certainly one of those norms. So I'm
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  Speaker 1: not sure how much this idea that he's breaking the
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  Speaker 1: mold counts against his decision. Indeed, it might have pushed
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  Speaker 1: him toward nominating someone other than Janet Yelling. But for
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  Speaker 1: the future, this norm it will be much easier to
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  Speaker 1: break than it will be to restore, and that does
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  Speaker 1: make me nervous. Peter, let me ask you something else
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  Speaker 1: about J. Powell. He's a bit of a no in
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  Speaker 1: quantity in the sense that he's been at the FED
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  Speaker 1: already for over five years in your historian of the Fed.
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  Speaker 1: As we've said, if you look back at the sort
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  Speaker 1: of pantheon of FED chairs, where where does he fit
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  Speaker 1: in or how does he stack up at least in
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  Speaker 1: terms of when they're incoming as FED chairs. You know,
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  Speaker 1: it's it depends on how we characterize those FED chairs
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  Speaker 1: if we look at who they were when they were appointed.
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  Speaker 1: I think J. Palill stacks up very nicely. Is credentials
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  Speaker 1: don't look terribly different from those of for example, Alan Greenspan,
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  Speaker 1: or Paul Volker or or Mariner Eccles, to name three
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  Speaker 1: FED chairs who from a monetary policy perspective have been
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  Speaker 1: widely regarded as very good ones. You know, Alan Greenspan
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  Speaker 1: has sometimes seen as this economist par excellance, but in
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  Speaker 1: reality he wasn't really an academic economist. His PhD was
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  Speaker 1: essentially an honorary degree. He received it in his late
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  Speaker 1: late years, in his fifties, decades after he had been
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  Speaker 1: enrolled at at n y U. His dissertation disappeared for
• 6:03
  Speaker 1: decades actually until Sebastian Mallaby founded again, and it would
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  Speaker 1: ended up being just a collection of papers that they
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  Speaker 1: had stapled together and said, hey, please give me a PhD.
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  Speaker 1: In response to this, uh so, the idea that only
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  Speaker 1: a PhD economist can be a FED chair successful in
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  Speaker 1: his false And j palas he said, five years as
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  Speaker 1: a central banker, many years working in private equity, working
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  Speaker 1: on investment side, working on the policy side, as a lawyer,
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  Speaker 1: this is a pretty sturdy basis of expertise compared to
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  Speaker 1: at least some of them. Now that said, there are
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  Speaker 1: other FED chairs who at the time of their appointment
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  Speaker 1: also looked like j Pal. Probably most is the other lawyer.
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  Speaker 1: That's Bill Miller, was Jimmy Carter's first appointment, and he's
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  Speaker 1: regarded as one of the least successful FED chairs in history.
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  Speaker 1: So it's an open road ahead for j Pal. I'm
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  Speaker 1: not sure how well how he'll do. He's got a
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  Speaker 1: history on his side for either being a great FED
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  Speaker 1: chair or a mediocre one. And Bill Miller only lasted
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  Speaker 1: about a year or so, as the historical records shows
• 7:03
  Speaker 1: Peter I wanted to step back and take a broader
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  Speaker 1: historical look at the FED. You know, you can talk
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  Speaker 1: about Greenspan's credentials, but it seems like he he really
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  Speaker 1: did shape the perception of the FED in the financial world,
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  Speaker 1: in popular culture too. When the FED was created a
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  Speaker 1: century ago, did people back then have an inkling of
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  Speaker 1: the kind of power it would command today, not just
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  Speaker 1: over the U. S economy, but over the whole world?
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  Speaker 1: And and how does that kind of shape the appointment
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  Speaker 1: process today? You know, that's a that's a really kind
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  Speaker 1: of deep historical question, because a lot of people had
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  Speaker 1: different ideas about what it was they were creating in
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  Speaker 1: n and something called it the Supreme Court of Finance.
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  Speaker 1: So they had very vaunted ambitions for what the FED
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  Speaker 1: could become. It was designed self consciously to insert the
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  Speaker 1: US economy, which by then was already extraordinarily large, into
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  Speaker 1: the international financial system, to create New York as arrival
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  Speaker 1: to London as a as a financial center. Same time,
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  Speaker 1: right after the FED is created, kind of call it
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  Speaker 1: the Rodney Dangerous field of federal agencies. They could get
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  Speaker 1: they just couldn't get any respect. There's a great instance
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  Speaker 1: where there was a question of a state dinner and
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  Speaker 1: where would the FED what we can now call the
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  Speaker 1: FED governor sit at the state dinner. And the answer was, well,
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  Speaker 1: in order of creation of the independent agencies, that put
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  Speaker 1: them way down at the bottom of the list, and
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  Speaker 1: that really rankled the FED, but seemed natural for everybody else.
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  Speaker 1: So it was more of a backwater technical agency, not
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  Speaker 1: at the core of the exercise of American power. That
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  Speaker 1: took a century to change in shape to be where
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  Speaker 1: it is today. Peter, a bit different question for you. Now,
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  Speaker 1: there's been this point of debate regarding the FED actually
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  Speaker 1: goes back many years, but got really hot since the
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  Speaker 1: financial crisis about how much discretion should policymakers have in
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  Speaker 1: setting policy. And of course, as you know, Republican lawmakers
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  Speaker 1: leveled a lot of criticism at Ben Burnank and Janet
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  Speaker 1: Yellen for using too much discretion. Now that we have
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  Speaker 1: a Republican appointed or will have presumably a Republican appointed
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  Speaker 1: FED chair, do you think those criticisms are going to
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  Speaker 1: kind of fade, in other words, whereas it most recently
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  Speaker 1: very partisan motivated those those criticisms, or do you think
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  Speaker 1: those will continue as a big point of philosophical debate.
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  Speaker 1: We're getting to the guts of monetary history with these questions.
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  Speaker 1: This is great. Rule based monetary policy is as old
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  Speaker 1: as money, right, The gold standard is a rule based system.
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  Speaker 1: In medieval Korea, it was a rice based currency. Cury Japan,
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  Speaker 1: we had a silk based currency. The entire idea is
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  Speaker 1: is some sort of mechanism to discipline the provider of
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  Speaker 1: this stuff, this money, so that they don't go hog
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  Speaker 1: wild and rip everybody off by creating more than a
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  Speaker 1: value could support. And that's the entire idea behind rules
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  Speaker 1: based monetary policy. Discretion UH central bankers with discretional exercise
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  Speaker 1: that the idea goes in ways that will favor their
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  Speaker 1: political patrons. And so there's a foundational critique that is
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  Speaker 1: existed pretty consistently that fired the imagination of Andrew Jackson
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  Speaker 1: created for us the allegory of the Wizard of Oz
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  Speaker 1: as a as an argument about rules and discretion. And
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  Speaker 1: so I don't think that debate is going anywhere. It's
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  Speaker 1: we've never had a world where we haven't been talking
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  Speaker 1: about what our money is and who gets to decide.
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  Speaker 1: But Christie make a very good point about, well, what's
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  Speaker 1: the partisan flavor of this, and I think that there
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  Speaker 1: are true believers who doesn't matter who is in office,
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  Speaker 1: who's at the Central Bank, who will always be raising
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  Speaker 1: these questions about the hardness of our currency, and they'll
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  Speaker 1: keep on making those noises. The question is who will
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  Speaker 1: join that coalition to amplify that critique, And there i'd
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  Speaker 1: I'd agree with at least with implicit in the question,
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  Speaker 1: which is amplifying that critique. Over during the Obama administration
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  Speaker 1: was an antipathy for Barack Obama and the perceived ways
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  Speaker 1: that the FED was supporting his economic program. Now that
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  Speaker 1: those partisan hats have switched, I think there are some
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  Speaker 1: people who are part of that critical coalition who aren't
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  Speaker 1: going to care that much anymore, and indeed are going
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  Speaker 1: to take the other side because they see it as
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  Speaker 1: advantageous to their partisan interest. So I would expect we'll
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  Speaker 1: still hear that critique, but not nearly as loudly as
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  Speaker 1: we've heard it before. Peter, we're recording this now just
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  Speaker 1: a couple hours after the Federal Reserve Bank of New
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  Speaker 1: York announced the retirement of its president, William Dudley in
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  Speaker 1: the middle of next year. Now he was a former
• 11:50
  Speaker 1: economist at Goldman Sachs when he became president of the
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  Speaker 1: New York Fed in two thousand nine. I believe part
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  Speaker 1: of that appointment kind of spark to anger, especially on
• 12:01
  Speaker 1: the liberal and the Democratic side, that you know that
• 12:04
  Speaker 1: that Golden Sacks was getting too much power. And actually
• 12:07
  Speaker 1: in the Dodd Frank Law, they were considering making the
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  Speaker 1: New York Fed a political appointment subject to set in confirmation.
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  Speaker 1: They decided against that in the end and ended up
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  Speaker 1: stripping out bankers power across the twelve regional Fed banks too,
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  Speaker 1: to have a say in appointing the president of each
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  Speaker 1: reserve bank. But essentially it sort of goes back to
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  Speaker 1: some of this anger over Dudley the New York Fed
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  Speaker 1: and Goldman Sacks being part of the issue. There were
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  Speaker 1: other things involved. So I want to ask you how
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  Speaker 1: that debate will help shape the appointment of a successor
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  Speaker 1: at the New York Fed in the coming months. It's
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  Speaker 1: hard to say. The process of appointing Reserve bank presidents
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  Speaker 1: is so opaque, and Chris is A is a real
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  Speaker 1: national expert on this, that we have no idea what
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  Speaker 1: goes into these discussions. We don't get to participate them
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  Speaker 1: in the in the public. It's entirely up to the
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  Speaker 1: Reserve Bank itself to determine how much public input, how
• 13:06
  Speaker 1: much transparency, or as is most often the case, how
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  Speaker 1: much nothing of either of these they'll they'll have as
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  Speaker 1: part of it. Bill Dudley had spent about two years
• 13:14
  Speaker 1: before his appointment two thousand nine as a New York
• 13:17
  Speaker 1: Fed employee. Now he was in charge of of asset
• 13:21
  Speaker 1: purchases in New York Fed, which is an incredibly significant
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  Speaker 1: position within the system. But in two thousand nine, and
• 13:27
  Speaker 1: something else is happening here, which is, of course we're
• 13:29
  Speaker 1: at the guts of the of the crisis response and
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  Speaker 1: the seeming inextricable connection between the New York FED and
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  Speaker 1: the banks that it supervises, or really on the front pages,
• 13:41
  Speaker 1: you know, we had Jamie Diamond was was on the
• 13:44
  Speaker 1: board of the New York FED getting access to the
• 13:47
  Speaker 1: New York FEDS thinking at the height of the crisis,
• 13:50
  Speaker 1: there were others who were still being paid by by
• 13:53
  Speaker 1: Goldman Sacks that get ethical waivers. It was just a mess,
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  Speaker 1: and a mess that fed hostility on the left and
• 14:00
  Speaker 1: the right. So if I were a member of the
• 14:04
  Speaker 1: board of directors in the New York FED, which is
• 14:05
  Speaker 1: something that I will probably never be I would be
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  Speaker 1: really mindful of the political consequences of continuing down this
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  Speaker 1: road of opacity and secrecy on this on this key
• 14:18
  Speaker 1: appointment process. And I would not go back to the
• 14:22
  Speaker 1: Goldman Sacks well um, as they've done so many times before. So, Peter,
• 14:27
  Speaker 1: that leads nicely into a question that's delves into the
• 14:31
  Speaker 1: structure of the US Central Bank. It really is in
• 14:35
  Speaker 1: the universe of central banks, I have to say, a
• 14:37
  Speaker 1: strange bird. It's not only decentralized, but it also has
• 14:41
  Speaker 1: this half public, half private legal foundation, the the regional
• 14:48
  Speaker 1: feds being actual private corporations. And that's led occasionally to
• 14:54
  Speaker 1: calls for reforms or restructuring of the FED. Do you think,
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  Speaker 1: first of all, in or mind, is the FED right
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  Speaker 1: for some sort of review or restructuring um? And if so,
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  Speaker 1: do you think j Powell is a character who's going
• 15:08
  Speaker 1: to want to investigate that or is he going to
• 15:11
  Speaker 1: simply defend the status quo? So you're you're asking two questions,
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  Speaker 1: is it right for review and is it right for restructuring?
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  Speaker 1: And I would say an emphatic yes on the first,
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  Speaker 1: and the second is trickier a predecessor bill to it
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  Speaker 1: we're calling the Choice Act, which was the Choice Act
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  Speaker 1: comes from the House Republicans. It's about making uh Dodd Frank,
• 15:32
  Speaker 1: repealing major provisions, reorientating others. But a predecessor buill to
• 15:36
  Speaker 1: this is the Shelby Bill that came out of cent
• 15:39
  Speaker 1: Banking Committee a couple of years ago, and in both
• 15:43
  Speaker 1: bills as a proposal for a new National Monetary Commission,
• 15:48
  Speaker 1: which is essentially to review top to bottom everything about
• 15:52
  Speaker 1: the Federal Reserve. Some versions of the bill excluded the
• 15:56
  Speaker 1: question of the reserve banks vitality, which I think would
• 15:59
  Speaker 1: be a gross error. Uh. And so I think that
• 16:01
  Speaker 1: review would be incredibly healthy. The structure that you described,
• 16:06
  Speaker 1: and gainly as it is, uh, was done to fit
• 16:10
  Speaker 1: a political logic of nineteen twelve and thirteen. And that
• 16:14
  Speaker 1: political logic barely made economic sense even then, and the
• 16:18
  Speaker 1: political logic today would be very different. The idea that
• 16:21
  Speaker 1: we'd only have, for example, one reserve bank west of
• 16:24
  Speaker 1: Dallas in San Francisco, treating economies as diverse as northern
• 16:29
  Speaker 1: California and Alaska and Salt Lake City, Utah. That's it's illogical.
• 16:34
  Speaker 1: The idea that we'd have two in the great state
• 16:36
  Speaker 1: of Missouri. With all respects to the Missourians who are listening,
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  Speaker 1: that that doesn't that doesn't make any sense why we
• 16:42
  Speaker 1: would have that. The other idea, though, that you're getting at, Chris,
• 16:44
  Speaker 1: is that we would have private bankers, or at least
• 16:48
  Speaker 1: those who are appointed in part by private bankers, sitting
• 16:53
  Speaker 1: in these seats of power, exercising some of the most
• 16:56
  Speaker 1: important control over the national economy, but without any kind
• 17:01
  Speaker 1: of political input. That made sense when our central banking
• 17:04
  Speaker 1: model was the was the private Bank of England, which
• 17:07
  Speaker 1: is kind of the nineteenth century banking model central banking model.
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  Speaker 1: But century we've seen an incredible evolution to the central
• 17:15
  Speaker 1: banks that we see today, which are decidedly public, which
• 17:18
  Speaker 1: are exercising public duties, and the idea that we'd have
• 17:22
  Speaker 1: private bankers doing that work at least needs to be reevaluated. Peter.
• 17:27
  Speaker 1: One last question before we wrap up, and this could
• 17:30
  Speaker 1: also touch on how the entire federal reserve system could
• 17:33
  Speaker 1: potentially be obliterated. There's been a rise of bitcoin cryptocurrencies.
• 17:40
  Speaker 1: How do you see that playing out with respect to
• 17:43
  Speaker 1: the federal reserve and central banking in general? Are we
• 17:45
  Speaker 1: going to be here twenty years from now, and you know,
• 17:49
  Speaker 1: whatever the FED has become will just be totally different
• 17:52
  Speaker 1: or a non issue. What's your sense of that. Have
• 17:56
  Speaker 1: other of you ever used cryptocurrency? Not many person I
• 18:00
  Speaker 1: have not. Yeah, a lot of people have, but they
• 18:04
  Speaker 1: tend to be enthusiasts, right, not those who are seeking
• 18:07
  Speaker 1: to simplify their monetary life. The technology of money it's
• 18:11
  Speaker 1: very well. There's always got to have three features to it.
• 18:14
  Speaker 1: It's got to be a medium of exchange, meaning you
• 18:16
  Speaker 1: find other people who are eager to use this intermediary
• 18:19
  Speaker 1: to solve your transaction. It's got to have a store
• 18:22
  Speaker 1: of value, so you don't want something that's gonna be
• 18:24
  Speaker 1: whip signing and value because you're putting your surplus into
• 18:28
  Speaker 1: this thing so that you can pick it up again later.
• 18:31
  Speaker 1: And it's gotta be a unit of accounts. You can
• 18:32
  Speaker 1: quote things in this cryptocurrency and people will understand, oh yeah,
• 18:36
  Speaker 1: one bottle of water equals this many iPhones, and I
• 18:38
  Speaker 1: can make that comparison because it's price. In the same way,
• 18:41
  Speaker 1: I'm not a bowl on cryptocurrency because other than the
• 18:45
  Speaker 1: enthusiasts who would love to see at all of the
• 18:47
  Speaker 1: power central banks or whatever torn down or frankly money
• 18:51
  Speaker 1: launderers and UH and black marketeers who like what the
• 18:56
  Speaker 1: technology of cryptocurrency can offer. Other than that, I'm just
• 18:59
  Speaker 1: not a lot of demand from people on the street
• 19:01
  Speaker 1: saying the money that I'm currently using is technologically defective
• 19:06
  Speaker 1: in a way that I can readily understand. And until
• 19:09
  Speaker 1: you get there, until you get to the point where
• 19:11
  Speaker 1: people are deeply unhappy with the money that the government
• 19:14
  Speaker 1: is presenting to them, then I don't see what cryptocurrency
• 19:18
  Speaker 1: is doing other than being a kind of a playhouse
• 19:21
  Speaker 1: for people to speculate and UH and think through the
• 19:23
  Speaker 1: intellectual puzzles of of of money. So put me as
• 19:28
  Speaker 1: a central banking bowl and UH and a cryptocurrency bear.
• 19:31
  Speaker 1: All right, Peter, Well, we'll come back to you on
• 19:33
  Speaker 1: the Benchmark Bitcoin podcast in and see how comments hold
• 19:38
  Speaker 1: up in twenty years. But Peter Conti Brown, thank you
• 19:40
  Speaker 1: so much for taking the time to talk with us today.
• 19:43
  Speaker 1: It was a real pleasure. Thanks for having me. Benchmark
• 19:48
  Speaker 1: will be back next week, and until then you can
• 19:50
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• 19:53
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• 19:57
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• 20:07
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• 20:12
  Speaker 1: Jay Condon, and Peter you are at Peter Conty Brown.
• 20:15
  Speaker 1: Benchmark is produced by Sarah Patterson and the head of
• 20:18
  Speaker 1: Bloomberg Podcasts is Macesca Levie. Thanks for listening, See you
• 20:22
  Speaker 1: next time.