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  • What Could the Fed Look Like Under Trump?

What Could the Fed Look Like Under Trump?

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Bloomberg Nov 7 10:07 · 75.6k Views

The Fed is expected to cut rates again tomorrow and Chair Jerome Powell is sure to face questions about Trump, who has publicly criticized him.

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Transcript

  • 00:00 Dropping by the studio, Bloomberg's Michael McKee, our economic and policy correspondent.
  • 00:04 Mike, good morning to you.
  • 00:06 Can you give me an impression of Chairman Powell tomorrow in the news conference with you?
  • 00:09 What is this going to look like?
  • 00:10 What's it going to sound like for 60 minutes?
  • 00:13 Well, they only go about 45 now, which is a benefit to him because he's maybe this one goes thirsty.
  • 00:17 We don't know.
  • 00:19 They don't know.
  • 00:20 I think they do the 25 that they've basically told us for this month and they were never going to really commit to another 25 in December
  • 00:28 because they're looking at a lot of mixed data lately and they could say we'll wait and see what the data say.
  • 00:34 Now they're going to have to wait and see what policy is going to be.
  • 00:37 I mean, there are some,
  • 00:39 there are definitely some Trump proposals that would throw, to use a British expression, a spanner in the works
  • 00:46 for the US economy.
  • 00:47 And they don't know what that's going to mean to them.
  • 00:50 So it's going to be a lot of
  • 00:52 bobbing and weaving and ducking and dodging.
  • 00:54 So I can do an impression for you.
  • 00:56 I was thinking about this this morning.
  • 00:57 Basically, we look at the data we have, we respond to it.
  • 01:01 There is a moderation in the labor force.
  • 01:03 We have seen that inflation has moderated and seems on a downward trajectory to
  • 01:08 our two percent goal.
  • 01:09 So we are on a path to cut rates incrementally, but we will evaluate data as it comes in.
  • 01:14 Key question, I'm curious about
  • 01:16 how do you interpret
  • 01:18 the long end of the yield curve
  • 01:20 rising so significantly?
  • 01:21 How concerned are you about what that signals if it does tighten financial conditions at a time where you think that this economy is fragile, and if it doesn't, about where the neutral rate is?
  • 01:32 Well, that's going to be an interesting question for the Fed to look forward to.
  • 01:35 And I think in December, you're going to want to read the minutes because they'll have a much more
  • 01:39 deep
  • 01:40 discussion on that.
  • 01:41 And then
  • 01:42 in five years, we'll get to see what the Teal book said.
  • 01:45 But they'll lay out all of their thoughts.
  • 01:48 And as they go forward into January and March
  • 01:51 meetings, they'll be talking about this more and more
  • 01:54 and trying to divine what it means.
  • 01:56 But with the long end going up,
  • 01:58 if you look at breakevens, that's what's driving it.
  • 02:01 It is inflation concerns.
  • 02:03 And
  • 02:04 that's one of the key things for the Fed is inflation expectations.
  • 02:09 So we get Michigan
  • 02:12 sentiment on Friday, but it's
  • 02:14 it's not it's not
  • 02:16 it's it's not going to tell us much about inflation because of the limited amount of time in that survey.
  • 02:21 But
  • 02:21 that's something to watch.
  • 02:23 That was good
  • 02:24 like that.
  • 02:24 Well, what we did, I mean,
  • 02:26 I mean, we're waiting on the House, but I'm hearing many people think potentially is going to be a trifecta reading the tea leaves.
  • 02:32 Trump told Bloomberg News that Powell could serve out to the end of his term of May 2026.
  • 02:37 Quote, especially if they thought he was doing the right thing.
  • 02:40 The right thing for the former president, real estate mogul is low interest rates.
  • 02:44 His policies may dictate something else.
  • 02:48 How does Powell deal with this?
  • 02:50 Well, he ignores it as much as possible because that's the only thing he can do.
  • 02:54 He can't respond to the president
  • 02:56 or he just risks creating market reaction.
  • 02:58 That's going to be a lot of problems for him.
  • 03:00 He will get the questions tomorrow, no doubt about it.
  • 03:03 And he'll say,
  • 03:05 you know,
  • 03:06 our job is to focus on the economy.
  • 03:08 And
  • 03:09 I'm not
  • 03:10 going to comment on anything else.
  • 03:12 But it is a question because
  • 03:16 I, I don't want to say you can't believe anything Trump says,
  • 03:19 but you can't believe anything Trump says.
  • 03:20 So if he says he can serve out his term, he may change his mind and decide I want to try to fire the guy.
  • 03:27 Who knows what would happen.
  • 03:28 Then we all end up in court.
  • 03:29 But who knows?
  • 03:30 Find that point.
  • 03:30 I don't think you can believe anything anyone says on the campaign trail.
  • 03:33 And that's the problem that you've got if you're a policy maker trying to set policy
  • 03:37 on campaign promises.
  • 03:38 Yeah, although there is a market response and there is some sort of read through that you have
  • 03:43 in a knee jerk way.
  • 03:44 And on one hand you can say we look at the economy, but on the other hand, there's like a dumpster fire behind someone and they're like, there's nothing to see here.
  • 03:52 The data is going to come out.
  • 03:54 At what point do they feel forced to actually have some sort of comment?
  • 03:57 This was a fast and furious Trump sweep.
  • 04:00 This was 2016.
  • 04:01 You have to think.
  • 04:02 Jay Powell last night and this morning was thinking,
  • 04:05 I wish it was 2020.
  • 04:06 I wish I can go into this meeting and say we can't comment because we don't know.
  • 04:10 They do know and they do have an idea of how Trump 2.0 will be because they can look at Trump 1.0.