I'm Leon Nafok, and I'm the host of Slow Burn: Watergate. Before I started working on this show, everything I knew about Watergate came from the movie All the President's Men. Do you remember how it ends? Woodward and Bernstein are sitting at their typewriters, clacking away. And then there's this rapid montage of newspaper stories about campaign aides and White House officials getting convicted of crimes, about audio tapes coming out that prove Nixon's involvement in the cover-up. The last story we see is Nixon resigns. It takes a little over a minute in the movie.

In real life, it took about two years. Five men were arrested early Saturday while trying to install eavesdropping equipment. It's known as the Watergate incident. What was it like to experience those two years in real time? What were people thinking and feeling as the break-in at Democratic Party headquarters went from a weird little caper to a constitutional crisis that brought down the president?

The downfall of Richard Nixon was stranger, wilder, and more exciting than you can imagine. Over the course of eight episodes, this show is going to capture what it was like to live through the greatest political scandal of the 20th century. With today's headlines once again full of corruption, collusion, and dirty tricks, it's time for another look at the gate that started it all. Subscribe to Slow Burn now, wherever you get your podcasts. Liz, if you were chair of the Federal Reserve Jerome Powell right now, would you be worried about your job?

I would be screaming into a pillow if I were Jerome Powell right now. Liz Hoffman is Semaphore's business and finance editor. She says Jerome Powell should be screaming into a pillow because his handiwork is being ripped apart with tremendous speed. After the pandemic, he was tasked with figuring out how to get the country's finances back on track. A lot of people doubted he could. He proved them wrong.

The consensus was that he had done it, that he had sort of pulled off the rare feat of cooling the economy in a responsible, sustainable way. Without triggering unemployment. It is a real threading the needle. And he did it. And then Donald Trump showed up.

And Donald Trump's policies are making Jerome Powell's job very hard. And on top of that, he is publicly threatening to fire him. So that's a tough hand. Facing this tough hand, Powell has pushed back with mild-mannered but consistent honesty. He said Trump's tariffs could lead to higher inflation and slower growth.

which is a politician's nightmare. That's when President Trump took to social media to say, Powell's termination cannot come fast enough. These words spooked the markets, enough that by Tuesday night, Trump was walking back his tough talk. But put yourself in the Fed chair's shoes. Would all of this back and forth reassure you?

He's actually handled this pressure with like a lot of grace, but it really complicates his job at a time when it is already just epically complicated by the economy that we're facing and the policies that he's trying to respond to. How much job security does the chairman of the Fed typically enjoy?

A lot. You know, we're going to keep getting asked, can the president fire Jerome Powell? And the answer is, I don't know. I'm not a lawyer. But two years ago, your answer probably would have just been no, right? That would have been my answer two years ago. But look, like everything, a lot of what this White House is doing, no one's ever tried it. We've seen Trump fire a whole lot of people that no one thought he could or should fire, like inspectors general, for instance. He's put loyalists at the Department of Defense and the FBI in.

Why would the chairman of the Fed be different? If you think you've seen a total freakout from the market, try firing the Federal Reserve chairman. Today on the show, the ongoing battle between the president and the Fed. Who will blink first? I'm Mary Harris. You're listening to What Next? Stick around.

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Visit Progressive.com to see if you could save on car insurance. Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states and situations. I want to go back in time to understand why exactly Trump is raging against Jerome Powell, who's a guy that he selected to lead the Federal Reserve ages ago in his first term. He got nominated in 2017. At the time, I assumed Donald Trump was a fan of him.

He liked that Powell was out of central casting. Like, he looks like a guy who should be running the Federal Reserve. And replaced Janet Yellen, who reportedly Trump thought was too short. Oh, boy. Yeah. So, yeah, he nominated Powell, appointed Powell, in the Senate.

And, you know, what I think we'll look back on is kind of the easy boom times. Pre-pandemic, everything was kind of fine. Interest rates were low and stable. The economy was kind of chugging. It didn't seem this is, you know, this is an important job, but at various times it can be harder or easier. And at the moment, it didn't seem like it was that hard a job. So it almost didn't matter that much. It was sort of like, yeah, this guy looks right. Sure. Check. Bye. Yeah. Anything else people should know about Powell, about who he is, his approach? Yeah.

He's a pretty establishment guy. You know, he spent some time on Wall Street at a private equity firm, but he's a really kind of centrist Republican. You

You can think of him kind of like a Rockefeller Republican, sort of believes in, you know, low taxes, free trade, you know, stability. He's not a real controversial character. You say Rockefeller Republican and I think, oh, that's like the opposite of a MAGA Republican. Correct. He belongs to the wing of the Republican Party. I would say that it's just like being being pummeled into extinction. Yeah.

I know Powell talks a lot about the dual mandate goals of the Federal Reserve, which are maximum employment and stable prices, right? And the Fed shares tools are interest rates. Can you just explain this a little bit for the listener? Yeah. You can think of the U.S. economy like a fire and the Federal Reserve holds the bellows. So the

Their job, as you said, is to keep as many people employed as possible. Historically, that means an unemployment rate, you know, three, four or 5%, depending on how the economy is doing. It had been historically low, you know, for years. This is a very tight economy, got even more so after the pandemic.

And its second job is to keep prices stable. This doesn't mean actually stable. It means inflation at a pretty low level. The Fed usually shoots for around 2%. And so the way the Fed controls the economy, again, if you think of it like a fire and they're holding the bellows. So if the fire is dying, if it's too cool, if the economy is growing too slowly, if people aren't spending, they can put oxygen in it and they do that fast.

simply by putting money into the economy. They lower interest rates, which makes it easier for people to borrow, to start businesses, to buy houses, to buy cars, to put things on their credit cards. They also often grow their own balance sheet, which means they're buying bonds from the market and putting cash into the system that way.

And then if the economy is running too hot, if the fire is out of control, they do the opposite. They dampen it. They raise interest rates, which makes everything more expensive and is meant to cool the economy down. That is their main tool. And in most normal situations, it works pretty well. Are we in a normal situation? No. No.

No. Look, we were, you know, as weird as it sounds to say the pandemic was a normal situation and the post-pandemic craziness was normal, it was textbook economically normal, which is that the economy shut down. There was a shock that shut down the economy. A lot of people got laid off. And so what the Fed did is it, and Congress helped here too by writing a lot of checks to Americans, it put oxygen into the fire.

It pumped up the economy artificially to counteract the just massive dampening of demand that the pandemic caused. And then on the way out of the pandemic, inflation is soaring. The economy is running way too hot because everyone has come out of

quarantine. Instead, I want to own everything. I want to do everything. I want to spend everything. They have these stimulus checks in their pockets. The stock market's out of control. So they raise interest rates. And they do. It takes a little while. It's a little stubborn. But by the end of 2024, it is clear that that has worked. And you can see a glide path back towards a more normal interest rate somewhere. Never going to be as cheap as it was for a lot of the 2010s where money was essentially free. But you're

But you're going to end up with an interest rate that is much more sustainable, that puts mortgages within reach for most people, that feels like a steady state. It's funny. I hadn't thought about the pandemic as like a proof of concept for the Fed. But that's kind of what you're saying. It was the ultimate proof of concept because it happened in such a chaotic and traumatic way. And yet it basically worked, if you can take the 30,000 foot view of it.

They managed to avoid deep depression on the way in and a financial panic on the way in and managed to kind of guide the economy back towards normal footing on the way out. A little longer and slower than people might like, a little more painful. And inflation almost certainly swung the election in a major way. But it basically was proof of concept for that playbook.

The problem is that playbook doesn't work in a situation like we have now, where you are worried about low growth, so a fire that is dying, but high prices. The tariffs make things more expensive than they would otherwise be in an economy with these characteristics about employment and consumer demand and sentiment.

So you've kind of created a lab experiment where the normal playbook that the Fed would unveil doesn't work. And that is the predicament that Powell finds himself in now. Yeah. And I want to talk about how reporters like you kind of began to see this not normalness start to play out over the last few weeks. Yeah.

Because right after Trump announced his Liberation Day tariffs, the stock market went wild, which I think everyone clocked if you had a television or a radio, because it was all people were talking about. But also the bond market started wilding out in this abnormal way. And I want I'm wondering if you can explain why that in particular was something that folks like you focused on and thought, huh, it's a sign of something abnormal going on.

So a lot of people, when they say the market, they think the stock market. And I understand that it's visceral. You look at your 401k and it feels tangible to you. But the dirty secret is that it doesn't really matter. The bond market matters a lot. Why? Both because of what it can tell you about the economy and what it means for the economy.

A bond, for those wondering, is kind of like a loan you give the government, most often over a 10-year period. They use your money now and pay you back later with a little interest. Sometimes people talk about it as buying government debt. Credit like this is what makes our economy hum.

So think about the Great Depression. It started with a stock market crash, but what caused the actual depression was an evaporation of credit. People couldn't borrow. They couldn't borrow to start businesses or buy homes or put things on layaway at the shop down the street. And that is how you end up in an economic doom loop. So people pay a lot of attention to the bond market. There's a famous quote from James Carville, who was President Clinton's top advisor to President Clinton. And he said...

I want to be reincarnated as a bond trader because they can intimidate everybody. So explain why the bond market is so important in this way. It finances the entire economy. If you had to, if any business had to pay for a factory out of its own cash reserves, it would never build a factory.

Everything is financed, is borrowed on some level. And the reliance that the US economy in particular has on borrowing is a bit of a weakness. But when the system is functioning, it's incredibly dynamic. And it's why we tend to come out of economic downturns faster than the rest of the world, because we're good at creating credit and encouraging people to take risks and

And that all hinges on debt being affordable and being functioning, that market functioning smoothly. Basically, other countries like China come to the U.S., buy our bonds and like kind of park their money there. And it functions as a loan to the federal government to do all the things we'd like the federal government to do. And it's why Congress can spend a lot of money. Yeah. It underwrites our entire deficit model. Yeah.

If people, you know, most households have to balance their budgets every year. In fact, most states have to balance their budgets, but the federal government does not. It runs a deficit and it's able to do that, to spend more than it takes in on services that we all want and demand because people are willing to buy its debt. And so that means that any flicker, any signal that that has broken down, that people now are a little wary about lending to Washington is

is hugely important and is watched really, really closely. And that is what happened on the back of tariffs. The bond market lost its mind. Yeah, people started selling their bonds. People started selling their bonds. What does President Trump want Jerome Powell to do to fix that? What you have to remember about President Trump is that he is at heart a real estate guy.

And real estate works best when interest rates are low, when money is cheap. You can think about that, that like your mortgage is more affordable when interest rates are low. But that's also true with commercial real estate, like the kind that Donald Trump came up developing. Developers borrow money for very little and they build these big projects. And that it's a merry-go-round that kind of relies on debt being cheap. And so Trump has always liked low interest rates. He's sort of the king of debt, right? Calls himself that. And so that has always been his starting point.

What he would like Jerome Powell to do explicitly now is start to cut interest rates. And the irony of all of this is that had Trump not done any of this stuff on tariffs, we'd probably be heading into an environment where the Fed was going to do that this spring and summer. Yeah. I mean, Jerome Powell gave a speech last week where he basically laid out his dilemma. He said the central bank could find itself in

caught between controlling inflation and supporting economic growth, which raises this specter of the 70s, right? Stagflation. What would that look like?

That is the word that everyone is trying to avoid saying out loud. Especially Jerome Powell. Yes, especially Jerome Powell. Other Fed officials have tied themselves in linguistic knots over the last two weeks not to say that, to instead say that they are going to have trouble fulfilling their mandate. But that's what they're talking about.

this period, and you have to go back to the 70s to see it, of high prices, that's the flation part, and stagnant economic growth, that's the stag part. And in normal economics, those two things don't

naturally occur together because lower economic growth, people feel poorer, they spend less. Those two things tend to prices go down. Those two things tend to move together. On the flip side, when the economy is hot and wages are going up and people are spending, prices tend to move up. So those two things tend to move together. Stagflation is when they move in opposite directions and they don't that doesn't naturally occur. It requires an external shock.

Here, the concern is that the external shock is the tariffs that have artificially made something and a lot of things that Americans buy more expensive and are putting upward pressure on prices at the same time that it is disincentivizing businesses to invest and people to start businesses because they're afraid of what's going to happen. We'll be back after a quick break.

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Hey, it's David Plotz, host of Slate's Political Gab Fest. On a recent episode, the bond market shrieks. My co-hosts Emily Bazelon and John Dickerson and I dissected Donald Trump's complex tariffs plan in his partial retreat. I think he just got to the point where he couldn't take the pain. But then if that's the case, wielding the threat doesn't really accomplish what you would need it to do to get the supposed changes.

And we talked about why the public's retreat from the bond market is what really made Trump flinch. They were running away from U.S. bonds, the 10-year Treasury in particular, as I understand it. And what that, the signal that sends is that the global economy no longer has faith in the American economy as a safe thing. So that was kind of the final signal.

If you scroll through President Trump's social media feed, you'll see that he's come up with a nickname for Jerome Powell, Mr. Too Late.

It's a dig meant to emphasize that Powell is stalling on lowering interest rates, which Trump thinks is going to cure the ailing economy. Even as the president sought to reassure investors this week that he is not going to fire Powell, he couldn't resist throwing another little ask in, saying, this is a perfect time to lower interest rates. Hint, hint.

The question for Liz is, what happens if Powell does not budge? What if Trump gets bored, changes his mind? If the markets didn't like the idea of firing a Fed chair, how would they react if he actually got the boot? Yeah, pretty quickly, I think people would, I mean, absolutely dump their Treasury bonds. You know, the movements that spooked people, you know, two weeks ago,

The interest rate that investors charge the government to lend the government money, it's called the yield. And the yield on kind of the benchmark bond, which is a 10-year bond, went from somewhere in the high 3% to about 4.5% over the course of a couple of days. And that doesn't seem like a lot, but it is. Why? Why is it a lot?

Because it's just a very quick move. I mean, the last time there was a move that dramatic was in the 2000s, I mean, around 2008. And it's a sign of real stress. Like the U.S. Treasury bonds have been, for all of modern history, the safest investment in the world. And so the price that people charge to hold them shouldn't change all that much. And when they move that dramatically, people get spooked.

A disastrous U.S. bond market would spell major trouble for Americans and how the government pays for everything. But Liz says that's not the only risk here. The global economy could get screwed, too. Treasury bonds have become kind of the monopoly money of the world. Imagine you go into an arcade and rather than putting dimes and nickels and quarters in all the machines, you just buy a bunch of tokens on the way in. And then everything in the arcade functions off those tokens.

A lot of financial markets, payments, trading, exchanges rely on treasuries as a base currency. And if the price of treasuries changes, it reprices everything.

All of those things. So a lot of loans are priced off of above what the similarly tenured treasury would cost. Treasuries serve as collateral for trillions of dollars of transactions. Right. If you're a hedge fund, you go to Goldman Sachs, you say, I want to buy X, Y, Z. They say, fine, we'll set that up for you. We just need a little bit of collateral in an account. You're almost certainly going to send them treasuries. And so if the collateral gets less valuable overnight, which is what would happen if people dump treasury bonds overnight.

You're going to see margin calls like we haven't seen since at least 2008, possibly ever, which is that all of these trading accounts are upside down and people are going to have to sell whatever they can to come up with cash. And that is how you end up with a financial crisis. Has something like this happened in an economy this big before? Well, there's never been an economy this big before, so no. No.

The U.S. economy is bigger than it's ever been, and it's the biggest in the world. So no. So really uncharted territory.

In times of uncertainty or fear, treasuries have been a safe haven. People sell stocks and they buy treasury bonds. That's the move. And that is not happening now. People are realizing, I'm not sure I feel that much safer holding treasury bonds, being a creditor to the U.S. government than I do holding a bunch of Nvidia stock. That is like a real indictment of the political moment.

It just seems like such a pickle because to me it seems like there's a real risk of investors just sitting on their hands and being like, I'm going to wait to see how this plays out. And so it's just you're not going to be getting as much money coming in, in addition to people who already own treasuries selling them off. And that seems like a long term problem.

I should say that the Treasury is always selling new Treasury bonds and the auctions over the last two weeks have actually gone fine. So the bottom has not fallen out of the new issue market yet. So that's something to keep an eye on and people are watching it very closely. But the demand for global Treasuries has been falling for unrelated reasons.

The Treasury has mostly been able to make up for that from allied central banks like the Brits and Canadians and the Australians and U.S. households have been pretty happy to buy shares.

But, you know, as a Wall Streeter was telling me recently, he was reminding me that the Dutch guilder was once the reserve currency of the world. And after that, it was the British pound. Yeah, these things are not set in stone. We do not have a birthright to be the reserve currency of the world. It's earned and it's what they call the exorbitant privilege. It lets you run your country differently than other people have to run theirs. And I think we've taken advantage of that privilege for a long time.

So what are the next moments to watch in this Trump-Jerome Powell showdown drama? Like, I know we have this 90-day pause in the tariffs. Are you looking at that as a kind of deadline to see whether Trump blinks with the tariffs, given things that Powell is saying publicly? Yeah.

I would expect the bond market to get twitchy again as we get closer to that 90-day clock without serious announcements of meaningful trade deals that will kind of put lower and more predictable tariffs in place across the board.

But into all of that, you know, Trump called the Federal Reserve chair a major loser and said he wants to fire him. So I don't know. By the time we get off the mic, it could be a totally different situation. I think, you know, if he really calls for Powell's head, that's a very, very dicey situation. It's just so interesting because he's such a mild-mannered guy. But he's been really firm on the president cannot fire me.

And, you know, there have been versions of this that we've seen over the last few weeks of people saying, I won't leave people coming to escort them out of the office. And you just got to wonder, what's Powell's red line? What's he going to do?

I think he's really committed to not leaving. I mean, I think he knows that he is sort of one of the last things that's keeping the U.S. economy on semi even footing. But, you know, look, you are starting to see a little bit of a backbone get grown in various corners that have caught themselves in, you know, in Trump's ire.

Harvard taking a stand, some of these law firms taking a stand. These are not the same, but I think the White House looks less politically invincible than they did a couple of weeks ago. In part, you know, their economic bargaining position is weakening. In part,

you know, looks a little bit like a clown car on some of the unrelated policies. And so I think a little bit of the invincibility cloak or whatever is dropped a bit and may give Powell enough cover to stick to his guns. But I'd be very surprised if he folded. And I don't think anyone knows how this would play out legally. Liz Hoffman, thank you so much for coming on the show. I'm really grateful. Thanks for having me.

Liz Hoffman is Semaphore's business and finance editor. She's also the author of Crash Landing. She'll be appearing at Semaphore's World Economy Summit this week in Washington. All right, that's our show. What Next is produced by Paige Osborne, Elena Schwartz, Rob Gunther, Anna Phillips, Ethan Oberman, and Madeline Ducharme.

Ben Richmond is the Senior Director of Podcast Operations here at Slate. And I'm Mary Harris. Go track me down on Blue Sky. I'm at Mary Harris. You can see my vacation pictures. Thanks for listening. Catch you back here next time.