this dimminimous uh uh exemption is
something that you looked at and
actually got rolling in the Biden
administration. Are you worried about
what it means for consumer prices?
>> At this juncture in time, I'm a little
bit worried because it will raise prices
and one thing we found is that the
incidence of the diminish dimminimous
rule falls largely on middle and lower
income households and they're the very
ones who disproportionately have imports
in their market basket. If you look at
who buys more imports as a share of
their income, it's folks in the bottom
half. And that's why the incidence of
this tax we call tariffs is really a
very uh regressive one. Uh it hits
middle and lower income people. That
said, I considered it a loophole and I
think loopholes should generally be
closed.
>> Fascinating. Well, I guess it's over
now. And I wonder what your thoughts
were today when you saw this emergency
hearing uh scheduled and conducted. It
finished with no decision. You've got a
Federal Reserve governor going into this
long weekend of Labor Day wondering
what's going to happen to her job status
and a president who believes that she
should already be fired. How is this
going to end?
>> It's just a remarkable set of events and
the threat to the Federal Reserve is uh
higher than I've ever seen it in terms
of their independence. Putting aside uh
the pretext around uh the documents that
are in question here, there is a no one
should at all question that this is
anything more than a power grab by the
president to take over the uh interest
rate in particular machinations of the
Federal Reserve. And that just couldn't
be more dangerous. It's uh going to be
terrible for uh households and consumers
who are going to face higher inflation
and higher interest rates. But
internationally, uh, when, um, creditors
to the United States start to recognize
that there's been political interference
in this really, uh, here to for
protected institution, that's going to
end badly for us as well. So, very
serious problem.
>> When you were at the White House, uh,
which was not that long ago, you
wouldn't even answer questions when we
would ask you your thoughts on
surrounding the Fed. We tried every time
we talked to you. uh we're in a
different world now and I'm wondering to
the extent that you know these
individuals and have worked with the Fed
over the years what this means
internally the culture of the Fed it's
not just Lisa Cook it's the visit to the
Eckles building it's the demands that
Jay Powell stepped down the nickname too
late Powell there's been a denigration
at least
>> in terms of the rhetoric coming from
this administration what are they
talking about in the building
>> it's a really important question I I'm
not in the building but but I can tell
you that when I was when I was back in
the White House and interacting with the
Federal Reserve
That firewall between politics and
monetary policy was something that we
both deeply deeply respected both sides.
And the reason is because we know the
history of what occurs when central bank
independence is compromised. I mean I
could point you to 80% inflation at
Turkey when Erdogan got up to his funing
games there. Uh but it's been repeated
throughout history including our own
with Arthur Burns and Nixon. So it was
always very clear that that political
firewall was not a cultural thing. It
was an economic thing and the history
the history of federal indep federal
reserve independence central bank
independence is very very clear
particularly through the inflation
channel. You compromise fed federal
independence um and uh higher inflation
walks in uh very quickly.
>> There's there's independence of course
the market's concerned about that. Then
there's the matter of public trust and
to come at this from the other way. If
if we find out, and I know you're not a
lawyer, I'm not going to try to make you
our legal analyst, but there's
apparently a third mortgage application
according to the administration, it's
not going to make her case any easier.
At what point does this become damaging
to a public wondering what these Federal
Reserve governors are doing?
>> I think we have to leave that uh to play
out in the courts. I take it's it's a
totally fair question. And look, we may
have to have two thoughts that we hold
in our head simultaneously. one is that
there were problems there and if that's
what the records show then they should
be uh worked out uh in in in court
accordingly and they should be treated
uh very much in keeping with the culture
of the Fed to be very pristine in this
area of financial oversight. The much
bigger issue is Trump trying to
compromise central bank independence,
trying to put his own people on the
board, trying to get a majority there in
time to perhaps act against regional Fed
presidents to take over the Fed in ways
that'll be massively damaging uh to not
just the US economy, but the global
economy. And that is a much bigger deal
than Lisa Cook's paperwork. Well, you
know, we've got a confirmation hearing
set for next week for Steven Myron, and
apparently he's going to be at this next
meeting in September, which is light
speeded. Yeah.
>> Uh around here, will she?
>> I I I really can't answer that. That's a
good that's that's a question for the
lawyers, and it's it's what they were
tangling with today. Look, one thing I
will say listening to the legal
discussion as a non-awyer is that none
of this sounds like it was for cause in
the type of fore cause that I believe
the drafters of the Federal Reserve Act
were thinking of the idea of malfeence
of uh of you know doing your job on
monetary policy badly. Um uh making
mistakes on your mortgage paperwork
intentional or otherwise. I'm not going
to trivial trivialize that. I'm not
going to speak to it. I don't know the
extent of the uh the problem there. That
all happened before she was on the Fed.
And the for cause uh to me sounds a lot
like what the for cause uh criteria
sounds a lot like what you were doing
when you were a Federal Reserve governor
and there she's been exemplary.
>> Interesting. Wow. So the uh the
expectation is that we get a quarter
point cut in September. Do you think
it's justified?
>> Uh at this point I do and that's because
of the job market. So I I actually ke uh
looked at the data, the price data this
morning and thought it militated a bit
against that in the sense that um we
just have some really sticky
inflationary problems that just remain
in this economy and some of that's the
tariffs, but we also saw uh inflationary
pressures in services in a way that's
pretty hard to connect to the tariffs.
So I I understand some I don't think a
rate cut in September is a slam dunk.
However, if it's true that the
underlying pace of job growth in in
payrolls is 35k a month, that's way too
low to keep the unemployment rate from
rising. And so, I would give that more
weight if I were thinking about
September at this point.
>> Okay, we only got about a minute left.
The president thinks we should cut by
150 to I believe 175 basis points. He
may have actually suggested 300 basis
points at at one point. If that actually
happened, what would be the impact not
on the market, but on the economy?
I think you'd really see an unleashing
of inflation and I also think you'd see
uh uh just an absolute conclusion that
the president has taken over the Federal
Reserve.
>> Well, okay. Because the Fed would never
>> I mean that would be an alternate
universe to say
>> it'd be an alternate the Fed would never
uh endorse a cut of that magnitude given
the conditions that we have now. So, it
would be in the near term it'd be pretty
destructive. And again, there's lots of
uh historical examples of inflation
going through the roof when uh
politicians take over. But the bigger
problem, the longer term problem would
be that would be just a sign surrender.
White flag, it's over.