The Future of the Fed: Austan Goolsbee & Krishna Guha 4/21/25
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This is SquawkPod from CNBC. On today's episode, Fed, Fed, Fed, plus a little extra.

A debate about Fed independence and President Trump's threats to fire Fed Chair Jerome Powell with Vice Chairman of Evercore ISI Krishna Guha. We're seeing a clear signal from the market that it doesn't like even the idea that the president might try to remove the Fed chair. And where Fed President Austin Goolsbee stands on economic politics and politics.

on whether a rate cut is coming. Everything's always on the table, as I say, is a huge table.

Plus, the latest on Harvard spat with the Trump administration. And the religious world mourns Pope Francis, who died at 88 just after Easter Sunday. I never told you guys. I went and visited with him. Did you really? I'm CNBC producer Cameron Costa. It's Monday, April 21st, and Squawk Pod begins right now. Stand back your body in three, two, one. Cue, please.

Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Market was closed for three days. I guess it's making up for some lost ground at this point. Gold was at an all-time high on Friday as well. Big today, too.

Yeah, gold is up big. $80, I think. Let's take a look at this. It's an all-time high. Now it's up 2.3%, $3,405 an ounce. The dollar is on a four-week losing streak that we've been watching, again, pretty closely over what's been happening with that. There are some questions about whether the Treasury Secretary would like to see a weaker dollar and lower rates. But the dollar this morning off by another 1.25%. For the year to date, it's down by 7.5%, and those numbers do start to add up.

In the meantime, the Vatican announcing that Pope Francis has died at the age of 88. Francis was Pope for about 12 years. He was the first Latin American pontiff. He stressed humility and he made concern for the poor a recurring theme of his papacy. He was also the first Jesuit.

who was in this position, and a lot of his positions reflected the Jesuits' overall broad views on things. He did alienate conservatives with some of the critiques that came of capitalism and climate change. First non-European pope.

In 12, since the eighth century, since the eighth century. Yesterday, Easter Sunday, the pope was visible. Got to see them see him there blessing thousands of people in St. Peter's Square in Vatican City. He made a surprise drive through the square in the popemobile and then had a lot of people hoping and thinking that he was in much better shape than we had been hearing recently.

He did suffer from chronic lung disease and was admitted to the hospital in February for a respiratory crisis that developed into double pneumonia.

The Pope also met with Vice President J.D. Vance yesterday. Tributes from world leaders have been flowing in this morning. Francis' successor will be chosen in a gathering of cardinals that's known as the Conclave, and we've all seen a lot more about that recently, too. It's like his last video was with the vice president. At the end of 2019, I never told you guys, I went and visited with him. Did you really? And interviewed him. Why did you not tell us? Because it was a piece I was going to write for the New York Times Magazine.

And then the pandemic happened. And so there was no time to, there was no, I never wrote the article and I was waiting to write the article. And it was all about how all of these corporate leaders, CEOs were actually going to visit with him. This actually goes back to ESG and capitalism and what was happening with the climate change and everything else. And all of these CEOs, I will keep their names out of it for now, but

were going on these pilgrimage, almost, trips to visit with him and to talk with him about what they were planning to do.

as it relates to trying to have a more inclusive, capitalistic society and what they thought should happen as related to their companies. And all of that has unwound. And of course, now all of that is unwound. Obviously, I haven't spoken to him since since then, but he knows he was he was very, you know, he was very encouraged by the idea that all of these businesses were doing. And it was very interesting to see

significant business leaders actually go to visit with the Pope to tell him this. And again, you know, people always say, were people doing ESG as some kind of virtue signal thing or something else? And I always thought to myself, I always go back to the meeting that I went to, which also involved a whole other bunch of people as well. And then I spent time with him afterwards. But it was

There were there are a lot of business leaders who actually, I think, genuinely did believe in ESG and in all of the work that they were doing as it related to this stuff, because they wanted so desperately for his approval. In fact, were they Catholic business leaders who were going out with the vote? No, there were Jewish business leaders. There were.

uh... muslim business leaders there were uh... some catholic business leaders it was it was a it was a is a crock cross-section uh... and by the way from the oil and gas industry from technology in silicon valley from banking uh... all also glad that was there one person who led the whole big thing we're doing this

No, and there were, people don't know this, there were lots of these kinds of meetings that were happening at that time. It wasn't just one trip. There were a significant number of leaders who were going to do this. And in fact, at one point, one of the pontiffs had gone to Davos, in fact, and actually met with a whole number of people about... What do you mean with a pontiff? A previous one?

I believe one of the earlier, I'm sorry, this pontiff had started to send statements, rather, I apologize, to Davos, and then they had sent some of their deputies to actually to Davos to start to meet with business leaders. Nonetheless, it's actually just interesting to think about. He issued an encyclical on climate change, and we'll see as the years go by.

whether the church and whether the Pope should have actually been weighing in on that. One of the criticisms of this Pope is that there were other things that were not totally dealt with.

From the sex scandals. Yes. And he's working on some of the issues in the opening. Working on what a lot of people are still skeptical. And an encyclical, a papal, it's very liberal from Argentina. I'm not going to say anything bad about him. I mean, a lot of those issues, those scandals have been inherited. This next pope, whoever that is, is going to deal with them too. He had a chance to, you know, but there were just times where it was like, this is your priority at this point when this is still, you know,

He's a Jesuit. I mean, I was Jesuit educated, but I can tell you that, you know, I did come back to the church after being educated by the Jesuits. It took a while, but they almost got me. They're so liberal. I mean, it's crazy, but...

It's okay. Tim Cook had gone to visit with him. Eric Schmidt had gone to visit with him. Steve Schwartzman, he's Jewish, had gone to visit with him. Again, people who are not necessarily all ESG, even focused people. Brian Moynihan, a Catholic. But there have been a number of trips. Reid Hoffman had done a separate trip. There were lots of different trips of people. I would say this was back in...

I would say the majority of those trips were back in 2018, 19. But this is all pre-pandemic. So there was just a whole bunch of people who were going to visit with him to talk about what they were doing, both around climate, which was something that he cared a lot about, and a lot of their DEI efforts, actually, very interestingly, were something that they were talking about with him. And...

And other kinds of things. There was not a or there were different organizations that did, but also some of them were going individually. Some were going as groups. But it was it was more business leaders than had gone to visit popes in the past. This was. Oh, this was there. I mean, it was like there was like a pilgrimages. I mean, but that's what I can figure out, which was something that was very new. Why was it because of the outreach from the Vatican?

Well, I think there was two things going on. I think the Vatican was open to this, clearly given this pope's views of these things. And it was very interesting to see that I think a lot of these leaders, business leaders, thought that, and they were moving in this direction, this idea of inclusive capitalism. Marxism.

You can call it Marxism. Other people can call it capitalism. But the Pope was truly from Argentina. He truly had a worldview that was antithetical to a lot of what capitalism stands for. And I made my, you know, I'm not going to, you know, he just died. I'm not going to say anything. But I was consistent all along with that. To put out an encyclical on climate change, I just am not sure that that,

A lot of Catholics decided that's what he should be worried about when they had so many other pressing issues that seem to be on the back burner, that are still on the back burner as a Catholic. Clearly, there were a lot of business leaders who were taking on the climate issue in a meek way, and that was one of the things they were talking about. How's that going?

Well, right now, by the way, it sounds like it's not going very well because this president is making it. This administration on climate? Right. But I think it's this administration. So you think it's the administration on DEI and ESG as well, or is it just that societal thing?

back on pushing back against the administration i think on the side on dei i think there's a i i think there's sort of a awokism that went too far and that i think it's the same thing around i think a lot of of i just think there's a pushback on a lot we're not getting the net zero any times even in europe you see that with the elections that have happened the greens are on the run may not happen i'm just saying i think that the the efforts were genuine even klaus is gone

All true. Your guy. All true. In the latest on Harvard, Wall Street Journal is reporting that the Trump administration is planning to pull an additional billion dollars from Harvard University's funding for health research. This is after last week's developments when the White House froze more than $2 billion of grants to Harvard after the school rejected demands which would have audited

the viewpoints of the student body and some other actions. And prior to that, the Journal's report says that the Trump administration was planning to treat Harvard more leniently than Columbia.

which saw $400 million in federal funding frozen over what the White House sees as insufficient combating of anti-Semitism on the campus. The report says Trump administration officials thought that the initial list of demands they sent Harvard a little more than a week ago was a confidential starting point for negotiations. Meanwhile, the New York Times has reported that the list was sent by mistake.

I don't know if you read that piece, which was fascinating how the folks at Harvard actually got a call from the folks at the administration afterwards saying that the letter was a mistake, that it wasn't supposed to have been sent to them. They get it on a Friday. They think to themselves, well, this looks like an official letter and it has all these demands in it. We have to respond to this letter. And so, of course, they call their lawyers and all the things happen that we saw. And then, of course, the response from Harvard is,

And then they find out afterwards that at least the administration privately was telling them we weren't actually planning to send you that letter. That letter was going to be distributed internally or something first before we figured it all out. And now, of course, there's a doubling down, though, that's going on by the administration, not just to suggest it wasn't a mistake, but we're going to take it farther. Teas will be next.

Next on SquawkPod, Fed Chair Jay Powell versus President Donald Trump. Who will succeed the head of the central bank with Vice Chairman of Evercore ISI Krishna Guha? If it looks like that person is coming in without weakness, without independence at the beck and call of the president, then you would set up the next Fed chair for failure. And I hope that on sober reflection, the administration will understand. A

A debate about Fed independence right after this.

The U.S. and China are competing for global leadership. The country who wins will define the world we live in. U.S. international assistance is vital to our national security. It helps prevent terrorism and avoid costly wars. It fights diseases and saves lives. It helps keep America as the number one economy in the world. U.S. international assistance protects our interests at home and abroad. If America doesn't lead, China will.

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

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Welcome back to SquawkPod.

This next conversation is all about the Fed. Fed Chair Jerome Powell spoke at the Economic Club of Chicago last week, and he weighed in on the economic impact of tariffs. The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects.

which will include higher inflation and slower growth. Both survey and market-based measures of near-term inflation expectations have moved up significantly, with survey participants pointing to tariffs. After years of chatter from Donald Trump about firing the central bank head,

Powell commented on the independence of the Fed as well. Never going to be influenced by any political pressure. People can say whatever they want. That's fine. That's not a problem. But we will do what we do strictly without consideration of political or any other extraneous factors.

Within a day, President Trump posted on his own social media platform, quote, "Powell's termination cannot come fast enough," end quote. He then commented to reporters in the Oval Office that he hasn't ever been fond of Chair Powell. "He's too late, always too late, a little slow, and I'm not happy with him. I let him know it.

Oh, if I want him out, he'll be out of there real fast. Believe me. Now, the entire exchange has renewed a debate about whether President Trump can dismiss the head of the Federal Reserve, the impacts if he did pursue doing so, and what kind of successor the economy can expect when Powell's term ends in May 2026. Let's get back to Andrew, Joe and Becky.

I want to bring in Krishna Guri. He is the Evercore ISI vice chairman. And maybe you can speak to the question. Do you imagine that the president could fire this head of the Fed? Is that even conceivable to you? So I think even at this moment, it's probably not likely, but it is clearly in the conceivable set.

It's something that we have to take seriously, you know, as a risk, and I think a serious risk to markets.

If he does that, what do you think is the risk to markets? But then secondarily, what do you think of this sort of shadow idea? You know, it's something that Scott Besson had raised before President Trump was elected, this idea that you could nominate effectively somebody who was, in this case, I imagine you'd have to find somebody who's famously dovish and announce their nomination, you know, months ahead of time, in which case that somehow the market sees through whatever this Fed chair is doing

with the expectation that the next Fed chair is going to be significantly different. So let me take those in order, if I may. So first of all, I think we're already seeing like right here and now in the equity futures, in the dollar, in the bond yields, we're seeing it

a clear signal from the market that it doesn't like even the idea that the president might try to remove the Fed chair. You know, there is there's been some loss of confidence in U.S. economic policymaking in recent weeks. We've seen that in this very odd combination of upward pressure at times on longer term bond yields combined with a weaker dollar. That suggests global investors pulling capital out of the U.S.,

But what you've seen is ongoing confidence in the Fed. You've seen ongoing confidence in the Fed, and that is crucial. You've seen those inflation expectations well-behaved, well-anchored. And that's what will eventually allow the Fed to be able to cut rates when we get to the point.

that unemployment has increased materially. But if you start to raise questions about Federal Reserve independence, you are raising the bar for the Federal Reserve to cut. If you actually did try to remove the Federal Reserve chairman, I think you would see a severe reaction in markets with yields higher, dollars lower and

equity selling off. I can't believe that that's what the administration is trying to achieve. Now, with respect to the question of, you know, what are we doing in terms of shadow Fed chair? I think it's not a great idea to have someone out there trying to second guess the Federal Reserve chairman. But it would be less dangerous if that person did not have a seat on the FOMC and there are no vacancies right now. Right. OK, so let me ask you then a different question, which is

Does this kind of interesting meta maybe idea here? We all think that Jay Powell is, quote unquote, independent today. But of course, whoever the next person is, you would hope is going to be independent, too. But it's possible that you would see that next person as a puppet of the administration, maybe not independent. I don't know. Would the market have the same kind of reaction?

So I think it's really important that whoever takes over from Jay Powell should take over in good circumstances, in circumstances where that person looks that he, as he continues to have the independence that all Fed chairs

I've had in the modern era. That's going to set the next Fed chair, presumably someone who Trump wants to occupy that position. It's going to set that person up for success. But if it looks like that person is coming in without weakness, without independence at the beck and call of the president, then you would set up the next Fed chair for failure. And I hope that on sober reflection, the administration will understand that, look, by all means, it's the president's right to nominate the next Federal Reserve chair.

in regular order. They should think about how to try to set that person up for success. So it also rebounds to the success of the administration as well. Christian, I worry about trying to anticipate the future for the Fed because they notoriously

have not really been good at doing that. Maybe it's just the nature of the beast, that it's almost impossible. You're always looking at the rearview mirror in backwards data. If he were to be wrong again, and if inflation isn't really the problem right now because of the tariffs, and we really are going into a slowdown for a lot of reasons, trade wars, everything else, and if we're late,

If we're late and we should be cutting now and everybody again says, oh, looks like Trump was right. And Jay Powell didn't lower rate. It'd be it would be bad to go out on a mistake. So that's what I mean. I don't know if he'd be set up for success. He'd be it'd be almost like he should have gotten rid of him earlier. And all these guys are just they can only be right for so long. I think a lot of times they should get out with when it looks when the getting is good.

So, look, I think it's always the case that the Federal Reserve is only making the best judgments that it can under extreme uncertainty. And it's going to make some mistakes. I think those mistakes are, of course, still more likely when you're being hit by very difficult shocks. And a big trade war is a big man-made shock. It pushes inflation up.

It pushes growth down. So is it possible the Fed could make a mistake in this environment? Yes, it absolutely is. And the question that you have to ask yourself, the question I think markets have a lot of conviction on, is would you rather have an independent group of people, an independent group of experts trying to make those calls?

as best they can or do you think those decisions would be better made under political pressure that's the issue you know we've batted around a whole bunch of names over the years of potential uh Fed chairs and one of the questions we were just discussing earlier is is there somebody out there right now that you think is quote unquote famously dovish meaning to the extent that you would want to nominate somebody who the market would see this way who is that person

So I'm not actually sure you'd want to nominate someone who is famously dovish. You would actually want to nominate somebody who has very strong hawkish credentials. And so the market would trust them, including to the point where they decided that it was appropriate to get cutting on interest rates. If you nominate someone who has a very dovish reputation, then the bond market would riot. So that's why I think there's interest, for instance, in looking at former Fed Governor Walsh, who does have an

and reputation as being hawkish. Again, I think the manner of the appointment would be crucial. Regular order. Do you think because he's known as being hawkish that he will come back around? That's a different question. I think Krishna's trying to do the Jedi mind trick, though. Not who Trump, not who should be nominated, who Trump wants nominated. If Trump wants a dove, Trump's not thinking about one. What he's saying is, he would think his warts would have the credibility because he looks hawkish, but he's saying, in fact, he would be a dove. Watch out for the bond market, yeah.

Because the bond market would think he, but you think Trump is playing three dimensional chess where he's thinking about how the bond market's going to react? You've told me that Trump's playing four dimensional chess. No, don't tell you I've told you that. Don't say I've told you. Five dimensional chess. I don't know any more than you whether there's a method to the madness at this point. So you think that President Trump would think, wow, war should be good for the bond market. I'll nominate him.

Again, I think the key thing here is it's strongly in the administration's interest to take a deep breath and let Fed Chair Powell

run things for the remainder of his term. That's the best shot of keeping inflation expectations well anchored, keeping bond yields well behaved and allowing the Fed to cut without causing real problems in markets. But when they look for a successor, they'll want someone who has hawkish credibility, but then has that credibility to cut.

Krishna is sending out his wish list to the administration. This is what the markets are hoping for. Please listen closely. It's also letting Jay Powell, he's making his own bed. If it does, you know, if they are late, Trump can say, hey, I tried and I let him stay and everything else. It's tough. I don't end, I don't. Yeah, it's tough. Krishna, thank you.

Next on SquawkPod, more Fed with Chicago Fed President Austin Goolsbee. Paul Volcker was a dear friend of mine, and his widow, when he died, gave me that original two by four that they mailed to him that says, please lower these insane interest rates. And I keep that on the shelf right next to my desk to remind me sometimes the Fed has to do the hard job.

The U.S. and China are competing for global leadership. The country who wins will define the world we live in. U.S. international assistance is vital to our national security. It helps prevent terrorism and avoid costly wars. It fights diseases and saves lives. It helps keep America as the number one economy in the world.

U.S. international assistance protects our interests at home and abroad. If America doesn't lead, China will.

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

This is Squawk Pod. You're watching Squawk Box right here on CNBC. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. It is now time for a very special interview this morning. Steve Leisman is at the table. That is going to be one of the pieces, but we have another component part that may be even bigger. The more important piece. Austin Gillespie joins us now. Chicago Federal Reserve President Austin, thanks for joining us.

Yeah, great to see you, Steve. So tell me how you balance this as a policymaker, this idea there is not really long-term expectations out of control, but you have people raising prices. What's the right call on policy in that context?

I think that highlights the dynamic that we've got short run expectations about inflation going up and people are expressing fear that we're going back to a kind of a 21 or 22 environment where prices are getting too high and inflation is starting to rage a little out of control.

but the core long run expectations not rising, at least in the market variants, I think that's a very important fact. So could you cut preemptively to address potential economic weakness? Look, everything's always on the table, as I say, it's a huge table.

But the Fed is supposed to be the steady hand here. What we need to do is look through, get the through line and where are things going to be, let's call it after the 90-day pause and going through the year. Tariffs are one input, they're one shock that happens to the economy, but conditions change all the time.

We've got the productivity growth rate has been surprisingly and lovely in a lovely way, been very strong for a couple of years. I would definitely want us to get a bead on whether tariffs or supply chain disruptions are affecting productivity growth.

And we just need to see most of the US economy is domestically driven. As you know, at the end of the day, imported goods are only 11% of GDP. So unless it jumps out of just its own 11% lane, the impact of tariffs on the macro economy could potentially be modest. Now, when I'm out here in the Midwest and we at the Chicago Fed are talking to people,

We're the most affected district by tariffs because we're the most manufacturing oriented. And folks have been saying for months that they were nervous about what potential impact would be if the tariffs were too big, that it would kind of throw us back to the 21, 22 period or even back to the COVID supply disruptions.

i kind of think the through line is we've got to get our way through this you you know out here if the storm signal goes off people know go down in the basement and wait it out and that's kind of writ large onto the economy that weighted out uh impulse is the thing that we we've just got to get through to figure out what to do austin the dollar has been a little weaker bonds a little weaker as well does it matter that the president

is talking about the potential to terminate the fed chair look i'm not going to get into the discussion on that i know the secretary i agree with the secretary of the treasury when he said fed independence is a jewel box that we don't want to mess with all economists i've been at the fed for a little over two years before i was ever at the fed i would tell you economists are basically unanimous that fed independence is critically important and

To see why, just look at the countries where they don't have Fed independence. Inflation is higher. Unemployment is higher. Growth is worse. So I think there's a lot of back and forth that...

is outside the purview of what the Fed, in my opinion, should be doing is following its legal mandate, stabilize prices, maximize employment. And that's the it is the conditions that determine what Fed action are not not anything else. Mr. President, the recent numbers that if I just were to immediately say, wow, this number matters, it looks to me like inflation is less of a worry right now.

than a slowdown. Tariffs can cause both. I'm more worried about tariffs causing uncertainty, which becomes self-fulfilling with corporations, and that we really get a possibility of a slowdown. I don't know about a recession,

And then on the inflation side, it just seems like a one-shot deal unless we get into a tit-for-tat. It's the second derivative. It's not like the inflation we had three years ago. It's not the same. So I think the risks are not equal now for the dual mandate. And that's why I think you believe this in your heart. It'd be nice to preempt the slowdown because these last inflation numbers we got were pretty tame.

I don't know if I didn't have my coffee or what happened, but most of what you said, Joe, I totally agreed with. That's what I mean. I don't know what's happening to me. Because you are MAGA Austin now. So, look, the...

I agree that if you get into the difficult part of a scenario for a central bank is if both sides of the mandate start going wrong at the same time. Right. If the inflation side does not start going wrong, then what's more likely than right now? Seems like the slowdown is a bigger risk to me.

It might be, but then it's also about magnitude. So if you started to see inflation going wrong and unemployment going wrong, let's say,

A, you would want to know how long is it going to last, and B, you would want to know, well, how much is it getting out of whack on one versus the other. If it was a theoretically pure tariff, let's call it, one time increase in the price, no retaliation, no follow-up increases,

very little in the way of supply chain disruption, then I agree with you. That's a transitory inflation shock. And I've been saying for a long time, if you could just keep it kind of in its lane, most of the US economy is domestically driven, is not dependent on tariffs. I think our uncertainties at this moment and why when for me personally, when I hear preemptive cuts,

We're getting announced retaliation. We're talking about revisiting the tariffs in 90 days, and we don't know what the impact on the supply chain is going to be. So I think we want to be a little more of the steady hand and trying to figure out the through line before we're jumping to action. Austin, you point out that your district is the one that...

is the manufacturing hub of the United States. You feel these things more deeply. Do you think that the tariffs can do what the president has laid out as a goal, which is to reinvigorate manufacturing, particularly in the Midwest? Do you see that happening?

That's a longer run effort. And I applaud the effort that if we're going to increase manufacturing, it partly depends how this negotiation chain with other countries is going to go. You saw the Secretary of the Treasury say that he thought when this...

period was over, it was going to reintroduce, he called it the golden age of global trade. If on the back end of this, we got new agreements and the productivity growth remained high, I think you could see a rebound of manufacturing for sure.

I was just going to give the example of steel where we put in tariffs on steel, which you would think would be fostering the domestic production of steel. But you've seen a series of domestic steel producers actually start some layoffs because the demand is not there, because the tariffs are hurting their customers more than they're helping their cost side.

Austin, I wanted to ask you a separate question. You referenced Scott Besson a couple of times now, once talking about the independence of the Fed, another in the context now of tariffs. But a different reference would be prior to President Trump's election, he talked about putting in place effectively a shadow Fed chair.

or at least nominating somebody, naming somebody early, and that this idea that somehow the market would look through it. This was his proposal, not somebody else's. Of course, now he has to deal with Jay Powell every week. He's kind of backed off of it, right? I know he's backed off of it, but he's the one who introduced it. And so the question, though, now is, given that the president is back to the idea of terminating the Fed chair,

whether you think there's a possibility that you would nominate or that he could nominate somebody early. And what do you think that does in terms of the way the bond market behaves? It sounds like you're asking for political scenario analysis from a guy with an econ PhD. No, no, it's not a political scenario. No, no, it's it's it's it's let's say there was somebody that was announced in the fall, uh,

And that person was sort of known to be dovish, if that's what the president wanted. Do you think that it's possible that the bond market or bond investors would, quote unquote, look through whoever is there in the interim?

to somehow get to the other side. That's, that's, it's not a political question. I would ask you, you know far more about what bondholders and investors' sentiment is than I do. I'm just down here trying to fulfill the dual mandate, you know, voting on stabilizing prices and maximizing employment. I,

I don't want to get into all the machinations that you're describing. Jay Powell is a Fed chair. I'm a strong supporter of the FOMC as sitting at the table. I can tell you it's my opinion that that is now the world's greatest deliberative body. One just real quick follow up, which is how.

How important is the Fed chair themselves to the conversations you have at that table? Meaning if somebody walks in the door and is extremely dovish or is extremely hawkish and they are running that meeting, that that ultimately would be the outcome. Well, I mean, it's a vote. And but the chair is by far the most important person sitting around the table. And their their opinion carries a lot of weight, I think, fundamentally.

That's been hard earned from Volcker forward. You've seen the chairs express their opinion and maintain credibility. So whoever is the Fed chair, I imagine is gonna be

strong name and somebody that will carry weight for sure. Right. But Austin, I wonder if it might be worth to look at the real reasons for Fed independence, which nothing to do really with the short-term call you make because

You guys, you get it right sometimes and you get it wrong sometimes. And maybe the president knows exactly what the right interest rate ought to be right now. But isn't there a long term issue here in terms of how Fed independence underpins the value of the dollar and the value of the whole bond market in that

If you get it wrong, you're going to correct yourself either way. Whereas if you are subservient to an administration, and this is not theoretical because we went through these bouts in the 70s where the Fed got it wrong and didn't correct itself until somebody else was appointed and came in. So isn't that really the issue is the long-term credibility of the Fed, not the way it operates within a cycle?

Yeah, probably. I mean, for the most part. And I think that's a different way of saying that of explaining why we tend to look at long run inflation expectations. And the fact that when short run inflation was almost double digits a few years ago, but the long run expectations that the Fed would get inflation back down to the two percent target were critically important. Fed independence is critically important for that.

As you know, Paul Volcker was a dear friend of mine, and his widow, when he died, gave me that original two-by-four that they mailed to him that says, please lower these insane interest rates. And I keep that on the shelf right next to my desk to remind me, A,

A, when we go to the FOMC meeting, it affects the real economy. But B, sometimes the Fed has to do the hard job. And that's if you look around the world, the reason why in countries where there is not Fed independence or central bank independence, the inflation rate is higher is because when there is interference over the long run, it's going to mean higher inflation. It's going to mean worse growth and unemployment.

higher unemployment because there's just going to be a little less willingness to step up and do the the hard things when when the moment is tough austin do you like the new

- Awesome, I mean, do you like, is it a better place not talking, I mean, we used to talk politics all the time and you just, you loved it, and you loved it, and you were so ready. - I grudgingly accepted your terms, Joe. - When you stop doing what you're doing now, are you going back to the old, or are you like St. Paul? Are you different, do you get knocked off a horse and you just are just totally-- - Did Joe just say I'm like a saint? Joe just said I was like a saint. I'm impressed, Joe.

You know that story? I think he was Saul before. Yeah, I know that story. Just real quick, Austin, you had said before... He didn't answer. Yeah, and I'm bailing him out, I guess. Austin, real quick, you had said previously that you think that rates 12 to 18 months from now will be lower from where they are today. Are you sticking with that?

I still think that because I think we're going to get through. There's a lot of noise, a lot of dust in the air. But fundamentally, coming into April, we had unemployment right around 4%, which is pretty much stable full employment. And inflation was in the mid twos and coming down. And if we can just get back on that path,

I think that the long run settling point for rates you can see in the dot plot is well below where we are today. So I think we're going to get through the noise and can get back on that. Austin, thanks so much for joining us this morning. Yeah, it's great to see you guys again. Austin Gillespie, Mr. President.

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