Who wants to be a Fed chair?
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Pushkin. What a time to be alive when the president of the USA is dropping bombs, both real bombs and F-bombs. Today, and it's Tuesday, by the time you hear this it may be Wednesday and everything might be different, but today Donald Trump says he's very unhappy with both Iran and Israel for disregarding the ceasefire and lasting peace he had brokered the day before, saying the two sides have been fighting so long and so hard that they don't know what the...

Flip they're talking about. No potty mouth here. I've taken out the swearing listeners. We'll leave that to the president. Now, with all that going on, all that uncertainty and confusion, who on earth would want the responsibility of running the US central bank, the Federal Reserve, when the top job comes up next spring? Not me, but lots of people do. And they're not all called Kevin, but it helps. Today on the show, we're looking at who is jostling for position.

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in lovely, sunny, but overly dry London. And I'm joined down the line by that fellow who invented the taco trade, and let's not let him forget it, Robert Armstrong, off of the Unhedged newsletter. Rob, how are you going? In New York today, it is approximately the temperature of the surface of the sun.

I soaked through my shirt twice on my commute. Yuck. Yeah, you put a cup of water outside, it just spontaneously starts to boil here. Now, Rob, I have a bone to pick with you regarding your Reddit AMA that you did yesterday. Yes, yes, I thought you might notice that. Would you like to make any small confessions about that?

I did tell some stories about your superpowers. Somebody said to Rob on this Reddit, ask me anything. Please tell us something about Katie Martin that nobody knows. To which I only realized like an hour ago. He replied, Katie kills wild animals with a single glance. She can mix a martini blindfolded.

She does black shoals options pricing calculations in her head. She is a pub chain heiress who has renounced her inheritance for political reasons. Every word true. Don't be modest, Katie. You've got to stop trying to make people think that I am the daughter of Tim Martin from the Wetherspoons pub chain. The rest of it I can live with, but I am not Tim Martin's daughter. Okay, so you say. Fair enough. Look, I'm going to get my own back one of these days. I know you will. But let's get...

to the Fed, Fed, Fed, Fed. Now, where are we? Trump called Jay Powell, who's the current chair of the Fed and who is leaving next spring. The other day, Trump called him a numbskull and said, maybe he, as in Trump, will have to force something on rates. So force the Fed to cut interest rates. So Chair Powell is testifying before the US Congress today. And

Ahead of that testimony, the president said the following. I hope Congress really works this very dumb, hardheaded person over. We will be paying for his incompetence for many years to come. So he's really laying into him. And I actually have a somewhat unconventional view of this, that this particular president mouthing off in this way about the chair of the Fed is actually fine.

And I'll tell you why. Because Powell is the perfect guy to handle this, right? He appointed Powell. Trump appointed Powell. First of all, he appointed Powell. So it makes the president look slightly silly. And Powell has been so cool and so measured and so consistent in his communication that the whole back and forth just actually underlines the independence of the Fed under Powell rather than undermining that independence. How's that for a theory?

It's not a terrible one. Yeah. But, you know, the convention is that presidents don't get involved in monetary policy at all. But the convention is often violated in small or large ways. Yeah. Convention's convention. Correct. But J.E. Powell is very good at this. He's very good at absorbing the volleys that come from the president and simply not rising to it and just sticking to his mandate, sticking to his script. Yeah.

But if you know that you can be appointed by Trump and you can still get hung out to dry by him in a public forum and called an idiot on, you know, live on television. Why? Why would you want this job? Well, it's an unholy, powerful job. It may be less powerful now than it once was, which is something we should discuss here. But just the reputation of the job is so immense that.

And if you do it well, you go down for all of history as a hero. The Fed chairs who do a great job, most prominently, of course, Paul Volcker, are like on Economist Mount Rushmore, right? Yes. They're the kind of heroes of the profession. So there's a chance for glory. There is immense power or at the very least the appearance of immense power.

And you can follow Jay Powell's example. And when the president throws a tizzy, you play it cool. Yeah, play it cool, man. So Trump has said he's not going to try and fire Powell. It's legally been determined that he can't fire Powell. So Powell is here until May.

And so there's this funny little kind of, you know, my mate fancies you kind of flirting but not flirting thing that goes on when you make it known that maybe you wouldn't hate to be nominated for the Fed job if it came along. So what we're seeing now is a few people who would not hate to be nominated for the Fed job sort of, you know, getting themselves out there quite a bit.

Quite a lot. Christopher Waller has been batting his eyelashes pretty aggressively, I would say. So he is one of the top contenders for the top job at the Fed. He already has a job at the Fed. He was saying straight after last week's decision by the Fed to hold rates that the Fed should start cutting in July. Yeah.

So what's going on there? Well, look, there is a case to be made. If you are not that worried about tariff inflation, there are small cracks in the labor market, small cracks. Labor market is still very good, but it's not getting better. And if you look closely at it, it's getting very, very slowly a very little bit worse, depending on how you read the data. So that is happening.

It's worth stepping back just very slightly here because the U.S. central bank does stuff differently to a lot of other central banks. Good point. Most central banks, they just target inflation. They do what they can to try and keep inflation at or around or ideally a little bit below 2%.

For the Fed, it's a little bit different because they have inflation to worry about, but they also explicitly have a mandate to support employment. So when you start to see the jobs market getting a little bit cracky, as you could argue we're seeing in the US now, that can be a reason all on its own for the Fed to start cutting. Yes. Now, inflation getting better. Last inflation report, good. Is inflation at...

Is that the made up but still important 2% target? No. It does seem to be trending that direction, but it's not there. So the Fed is a bit stuck between its two mandates. And if you ask any Fed chair, "Which mandate is more important? How are you going to prioritize? How are you going to choose?"

They, in not so many words, say, we don't know we're improvising here. Yes. They don't use those words. We're making this up as we go along, but looking very clever doing it. So the line from the Fed, which I think, you know, is fair enough, has been, look, the economy is basically strong here. Yep.

Inflation is going the right direction. We're not at target. So why don't we just wait and see what happens? The slogan is we can afford to wait. We're in the lucky position where we don't have to rush.

But the mystery is, because the difficulty is, the economy is doing fine. Inflation has been coming back towards target, but there's been this expectation that any minute now, the effect of all the tariffs is going to kick in and inflation is going to rush higher and that's going to make it impossible for central banks, particularly the Fed, to cut. But where is the tariff inflation? Where is it? I mean, the theory goes that

It takes time to show up because wholesalers and retailers have inventories purchased ahead of the tariffs. They will wait.

knowing that the tariff situation is rather uncertain. They will try to keep prices where they are to hold market share in hopes that the higher tariffs will turn out to be a blip, et cetera, et cetera. But I agree, it's a thing that it hasn't really started to show up yet, and maybe our theories about this are wrong. Now, as Jay Powell said in the last press conference, at some point, somebody has to pay these tariffs.

And the idea that it's not going to show up in consumer prices at all seems a bit far-fetched. That the importers and the manufacturers abroad would simply eat them. Maybe they're going to eat them more than we expected. Maybe tariff inflation won't be as bad as we thought. That's a possibility that has to be reckoned with. And I think that's what people like Waller are talking about.

For now, it's really difficult to be like super declarative one way or another because we don't know what happens at the end of what is supposed to be a 90 day pause on the crazy, full fat, reciprocal Liberation Day tariffs from April the 2nd. Like all things equal, that deadline runs out on July the 9th.

And nobody knows with any degree of certainty what's going to happen. Do we go back to those original rates that were on the funny boards in the Rose Garden? Or is that whole thing off? I mean, I don't know. You don't know. Nobody knows. Yes. But I will say this. A lot of people on the Internet said that Rob Armstrong is dumb this week after the president dropped a bomb on Iran because clearly this is not an instance of the president chickening out.

And fair enough. However, I do think if...

heavy tariffs come in and the market rebels, the president will chicken out on the tariffs. I still believe that to be true. He may not have chickened out on Iran, but I still believe in the face of an angry bond market and angry stock market, he will find a way to moderate the tariffs until he is back in the market's good graces. So that is an argument that tariffs won't ultimately land at a level that is terribly high.

So if you bake all of that into your view, which is we are past peak tariff nonsense and we can just get back to basics and the jobs market is cracking a little bit, inflation has been falling back towards target, we should start...

So that's the position of Christopher Waller, who is one of the contenders for the job. Then we have two Kevins who are in for the job. Now, the key contender here, the man to beat, is supposed to be Kevin Walsh. Yes. Who resigned in 2011. Hmm.

He's had some tough words for the Fed, particularly in recent weeks, again, as part of this batting eyelashes. Oh, there's a job going at the Fed. Oh, you might consider me. Oh, good heavens. I couldn't possibly. I couldn't possibly. I'll just go and give some speeches. Anyway, one of them...

He was saying there's too much quantitative easing from the Fed back in the day. That was when they buy bonds to try and stimulate the economy. There was too much of a willingness to accommodate lax fiscal policy. There was too much mission creeping going green and considering environmental concerns. And the Fed has lost some credibility and that has generated worse outcomes for our citizens. That last bit. That will all play very well in the White House. You can be sure that kind of talk. Well, that's the thing.

thing though it doesn't it doesn't to the extent that he's got zero tolerance of inflation surely if anything he should be quite hawkish which is the opposite of what Trump says he wants that's why he's calling Jay Powell a numbskull as the Powell is not cutting rates as quickly as he likes so I kind of don't get why Kevin Walsh is the man to beat I will intervene here with another unconventional and possibly incorrect here we go yeah yeah

Which is that Trump is probably not as dovish as he sounds. In other words, he's not as much a low rates man as his rhetoric suggests because he has just watched his loathed predecessor Biden be bashed over the head. His administration basically destroyed by inflation. Is he really game to play that game?

of seeing how low rates can be pushed by appointing a big softie to the Fed job. But all things equal, and, you know, long pause here, Trump doesn't have another term. What does he care what happens to the next guy? But still, if he wants to get anything done, and just if he wants to be liked...

He won't be liked if he presides over a rebound in inflation. The reason he likes complaining about Jay Powell is because he likes blaming other people for everything. It's not necessarily that strong a signal of his actual view about interest rates. It's a signal that that's the kind of guy he is.

So, so far in contention, we've got Christopher Waller, who's a cut rates now kind of guy. We have got the first Kevin, Kevin Walsh, who is a hawk, really, who is a bit of an inflation fighter. Then you've got another Kevin, Hassett. Tell us about the other Kevin. Well, Kevin Hassett, who is the director of the National Economic Council, was at one point quite a conventional government economist, right?

and has kind of turned into a very enthusiastic proponent of Trump's economic ideas, especially tariffs. I've interviewed him once. I thought he was a pretty straightforward guy. If there is a rap against him, it's that he's a courtier who will kind of parrot whatever the president says. But maybe that goes down pretty well in these days and times. So second, Kevin Hassett, straightforward fella. You heard it here first. Now, number four is.

Now, this is quite a weird one, I think, is Scott Besson, who is currently the Treasury Secretary. Surely that just means a whole load of revolving doors and having to fill that position and da-da-da. Can Trump be bothered with all that? But

Besant is, again, he seems, you know, the line is, I'm very happy running Treasury. That's all good. You know, again, he seemed seen at least to be jostling. Is he a proper contender, do you think? I don't know. I think he's been quite ineffectual as Treasury secretary. Not that he's done anything wrong, but he's.

In terms of public persona, he's just the guy who explains what Trump has just done in the aftermath. That seems to be his job as Treasury Secretary. And he made a bit of a fuss

about how Janet Yellen, his predecessor, was issuing more U.S. debt at short maturities. And this was a kind of naughty trick to suppress long-term interest rates. And then he got the job and he did precisely the same thing. Yes. Yes. So that maybe marks him out as a bit dovish, maybe. I don't know.

In terms of being the guy who kind of gets out in front of the cameras and says, this is what Trump just did, that sort of reminds me of a phrase that a PR person introduced me to a few years ago, which is, you can't polish a turd, but you can roll it in glitter. And he's...

I've never heard that before. It's a good one, isn't it? Yeah. He's that guy like rolling this policy in glitter and trying to make it look shiny and credible, which is a very difficult job a lot of the time. I don't know how ineffectual he has been. You think he's actually rolled it pretty well. I think he's rolled it pretty well. And I think, look, Trump stepped back from the most aggressive tariffs after the bond market started to get a little bit wobbly.

I find it impossible to believe that Trump was watching the long end of the Treasuries market particularly closely and the outcome of, you know, everyday bond auctions particularly closely during that period. I think the person telling him, sir, the bond market's got a problem with this, is very likely to have been Scott Bessler. I think we can credit him with having...

helped to turn the president away from some of his more aggressive tactics. Besant may also have the very important White House job of making up excuses to keep Peter Navarro out of the Oval Office. Like, your mother called. She's on the phone downstairs. Quick. Oh, did you see? There's an elephant walking down the street. Go look.

You better run now, Peter Navarro. And then quickly shuts the door and tells Trump that the bond market has gone loopy and he's got to step back. Yeah, Peter Navarro, for those who are not familiar with the kind of ins and outs of the White House, is very much the guy who's been driving the more aggressive tariffs. Correct. First of all,

Who's your money on out of those four men, two of them called Kevin? You're not allowed to just say Kevin. Waller. You have to say which Kevin. You think Waller now. It's Waller. Yeah. I think he's singing from the right hymnal for the moment, which is rates are too high. He's respectable. I think you're right that Kevin's probably aren't.

So this is the guy. And Besant is busy rolling things in glitter. So maybe. Yes. Maybe all is well. What I would just say, though, is Trump loves a surprise. He does. And just don't fall off your chair if someone shiny off the TV just ends up being like plonked into the room. Are we out of Fox News hosts for him to appoint to things? Yes.

After the rip-roaring success of Pete Hegsworth in defense, who else can you think of? And say what you like about Hegsworth, but he does have very good hair. Man, is that good hair. It's great hair. So there could be someone else out there with great hair who we just have not considered.

Listeners, if you can think of anyone with great hair who might be good at the Fed job, let us know on hedged at ft.com. But we are going to be back in just one second with Longshot.

Probably the most pressing concern that I see with regards to the investable quality of our industry is that it's so, so tied to fuel price. So you'll see that as fuel prices rise, our stocks go down and vice versa. It's just very difficult for people to manage through. But we have seen sustained periods of growth over the last decade, and a few of the airlines have done very well. To learn more about the evolution and investment opportunities of the airline industry, subscribe to PGM's The Outthinking Investor.

Half performance is not a guarantee of future results. Okie dokie, it's time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got? Katie, I'm long restaurant inflation. I wrote about this a little bit last week. Matt...

Klein over at the Overshoot, finance writer I much admire, pointed out that we have seen a little bump in restaurant pricing. And restaurants are kind of the ultimate discretionary item. Yeah. No one needs restaurants. And yet inflation is going up there. And restaurant inflation has been a good leading indicator in the past. So I think something may be going on there. That may be the first kind of canary in the cold mine of inflation. I'll be watching it closely.

And I will be eating... You'll be watching it closely by going for lots of dinners. Correct.

I have eaten a Taco Bell twice in the last couple of days. Did they give you a freebie? No. What are you long and short, Katie? I'm long gardening. This is a very important week, Rob Armstrong. I'm involved in community gardening. Oh, very nice. Hashtag humblebrag. And the judging for the London in Bloom community gardening competitions is on Friday. Me and my friend Penny, who is a new listener to the Unhedged podcast,

We sort of, you know, busy ourselves about on the street, tidying things up and making things look pretty. What's your signature plant, Katie?

Probably a hot-lipped salvia. It's the only thing I can grow from cuttings. So for those reasons, that's my favourite plant. Lots of other plants are very mean to me, but a hot-lipped salvia is generally the way to go. And on that extremely important point, we're going to have to wrap it up and we are going to be back in everyone's feeds on Thursday. So make sure you listen up then.

Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.