Will we look back on this day as the day
that Fed independents died?
>> It's too early in to know. And you know,
we've seen a lot that has been
threatening to Fed independents. an
unprecedented degree of rhetorical
attack publicly from the president on
the Fed, involvement of the president in
criticism of the Fed over a relatively
minor matter, the creation, the
construction of a building,
announcements uh by the president of
various kinds with respect to uh the
composition
of uh the Federal Reserve. So, I don't
think there's any question that we're
facing the most severe challenge to Fed
independence in the last two
generations.
And I don't safe to say this is the
beginning of the politization of the
Fed.
>> Well, I think that I don't know that I'd
want to call it the beginning. There
have been various things that have
happened in the past, but I would say
it's the gravest, most extensive
politicization of uh the Fed in more
than 50 uh years. And what we know from
experience around the world and from our
own historical experience, for example,
with Richard Nixon and the then chairman
of the Fed, Arthur Burns, is that when
monetary policy is politicized and when
it is perceived as politicized,
everybody expects higher inflation. And
then that higher expected inflation as
wage wage earners bargain as price
setters set prices becomes a
self-fulfilling
uh prophecy and you get higher
inflation. And if you want to do
something about it, then when
everybody's expecting higher inflation
and pushing prices way up, if you don't
validate that by printing money, you end
up getting a recession. So it makes it
harder and worse uh for everybody and
that's why most countries in the world
have moved to having institutions based
on independent uh central banking and
you saw a bit of market response. It
wasn't a dramatic market response uh
last night but it was a revealing one.
You saw short-term interest rates go
down because people thought, gee, if
it's so political, the Fed's going to
cut more. You saw long-term interest
rates go up because people thought we're
headed for more inflation. And you saw
the dollar go down because even though
you could earn a higher interest rate on
the dollar, market judgment was that it
was going to be a less valuable currency
over time because of all the mon money
that was going to be printed by a
political Fed. So it was a sign that we
were looking more like um an emerging
market uh country. And I think that's
the way this is going to be read uh very
broadly over time. And if we know
anything, it's that these things don't
happen smoothly. It's like Hemingway
said, how do you go bankrupt? First
slowly, then quickly. And if we lose our
credibility, if at a certain point our
credibility tips over, only takes uh
takes decades to grow a forest, but it
takes only an hour to burn one down. And
credibility is a bit like that. And
we're putting ours at risk. And it's
made worse by the fact by a couple of
things. It's made worse uh by the fact
that the president's proposals for
monetary policy are outside of the
reasonable range of debate. You can
argue as to whether we should cut rates
50 basis points or 100 basis points.
There is no one outside of those
politically attentive to the president
who defends the idea that we should cut
interest rates to anything like the 1%
that the president has talked about. No
one. That's not a serious um idea. And
by the way, I just have to say this.
Is it really this president who is
treating
saying things that don't turn out to be
exactly accurate on a real estate
related loan application
as being the end of the world?
That is a sin of which the president has
stood accused on many many occasions.
has been found guilty by courts, has
engaged in settlements,
has paid uh fines, and so if somehow
misleading statements on loan
applications
are disqualifying,
I think that that's a brush that should
paint uh very very uh broadly.
Secretary, the current Treasury
Secretary, Scott Besson, said today in
the president's cabinet meeting, "The
Fed's independence comes from a
political arrangement between itself and
the American public, having the public's
trust," he said, is the only thing that
gives it credibility. Lisa Cook is going
to fight this. The lawsuit is coming
today. How important will it be for her
to win this lawsuit on a precedent
setting level to maintain that
credibility?
Look, I don't think we have yet had
access to all the facts. I don't think
the president has access to all the
facts. And that's why jumping to any
conclusion without any sort of process,
without any sort of factf finding was I
think uh completely inappropriate. So I
don't feel in a position to judge the
results of lawsuits, but I can judge the
process and I have to say I don't
understand
quite what Secretary Bessant was saying.
The view that previous administrations
have had is that the independence of uh
the Fed is in part reflected in statute
that it reports to the Congress that it
is not part of the executive branch.
what the Supreme Court recognized when
it distinguished the Fed from other
agencies with respect to the president's
ability to hire and uh fire. So in part
it's rooted in law and in part it's
rooted in uh tradition. Secretary Rubin
and I, I remember very well, told
President Clinton that it was our advice
to him that engaging in public debate
with the Fed was a fool's game because
the Fed wouldn't listen and so
short-term interest rates wouldn't be
changed very much, but the markets would
listen as credibility was lost and
long-term interest rates would rise. And
that's why we have an established
tradition
uh which Secretary Bessant has endorsed
very recently of administrations
not engaging on uh the question of
monetary policy and how interest rates
should be set and at what level they
should be set. But we have an
administration
that is disregarding
the superstructure of norms that has
really been what has made our democracy
and our economy so strong uh for
decades. Uh this is of a piece with uh
sending the FBI to former officials
homes with uh threatening people with uh
criminal uh prosecutions. And I think
over time it runs very very substantial
risks for our national economy.
>> Secretary, I'm out of time. I just want
to know to the extent that you
understand it, can J. Powell keep Lisa
Cook employed as long as he thinks it's
correct. Is he the one who controls her
paycheck?
>> I don't think it's I don't think so. I I
I I'm not
>> So Donald Trump can cut off her
paycheck. I'm not an expert on the leg
on uh the legalisms, but remember that
whereas the deputy secretary of state
reports to the secretary of state, the
governors of the Federal Reserve are not
subservient to the chairman and don't
report to uh the chairman. So, I think
this is something that will be worked
out uh in court.