This is the audio transcript FT News Briefing Podcast episode: ‘Swamp Notes: Fed Political Pressure‘
mark filipino
American voters often vote based on the state of their wallets, and perhaps no institution does more to shape the economy than the Federal Reserve.
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this is swamp notea weekly podcast FT News Briefing, we talk about everything that will happen in the 2024 US presidential election. I’m Mark Filippino. This week’s question is: Does monetary policy matter in this election? We’re here to talk about Ed Luce. He is the FT’s U.S. national editor. Hello Ed.
edward luce
Hello. I’m glad to be with you.
mark filipino
It’s good to be back. And then there’s Claire Jones, the FT’s acting US economics editor. She covers all aspects of monetary policy. Hi Claire.
claire jones
Hello, Marc.
mark filipino
So, Claire, I’d like to start by understanding the macroeconomic world a little bit. As you know, one of the Fed’s main missions is to keep inflation low. The target is 2%. It’s higher than that now. And they try to reduce it by raising interest rates. Do you know what they have planned for the next few months in this regard?
claire jones
So it’s been a crazy few years for the Fed. We have seen the highest inflation in decades. And the Fed really had to respond to that by raising interest rates very aggressively. At the turn of the year, there was a sense that central banks might be able to ease up a bit. We saw inflation fall quite sharply towards the end of last year. It was expected that this situation would continue this year, leading to a situation where the Fed would consider lowering interest rates. But that was last week, and the message we received very clearly was that interest rates, currently at 23-year highs, need to remain high for even longer than expected. .
mark filipino
And how did investors and voters feel about it?
claire jones
I think investors are closely monitoring data on the economy. In a way, it was very good. This showed that the labor market was far more robust than people expected. Consumer spending is still pretty decent. However, the news regarding inflation was very disappointing. The latest readings show that price pressure is gradually increasing. And that has led to some speculation that U.S. inflation may be a little more robust than expected, and that interest rates this high may not actually be having the desired impact on price pressures. This is a departmental concern.
mark filipino
I think a lot of the campaign, and I think the Biden team is thinking this way too, that a rate cut will momentarily feel like a tipping point. And, you know, a lot of campaigns see this as a boost to the U.S. economy. I would argue that the US economy does not need an immediate boost. The GDP numbers are really strong. The US economy is incredibly hot. Does it matter if Biden cuts rates before the election?
edward luce
So I think your characterization of the macro numbers for the U.S. economy is correct, but it doesn’t feel hot to a lot of people on Main Street. Wall Street feels hot. Main Street doesn’t feel the heat. If you are under the age of 45, you have never seen interest rates close to this level. Credit card payments will be affected. Affects car loan payments. If you are trying to get on the housing ladder, it acts as a block against it. So even if we only get one or two reductions by November, that’s a huge deal for individuals and for consumer sentiment in general. In fact, Biden will say he can a) declare victory over inflation, but b) look, they’re moving in the right direction now. This is the way they are going. “And in my second term, we’re going to go back to even more historically low interest rates.” That would be very helpful for consumer sentiment, and by extension, voter enthusiasm for Biden’s re-election platform. Helpful. So I agree with your explanation of macros, but they don’t go very far these days.
mark filipino
got it. So I would like to return to last week’s Fed meeting. Claire, you were covering that, and you were at a press conference and another reporter asked if the bar for rate changes got higher as the election got closer. Fed Chairman Jay Powell responded:
Jay Powell audio clip
There is a big difference between institutions that take all kinds of political events into account and those that don’t. That’s the big difference. And, you know, we don’t do that. This means you can go back and read all your transcripts. . . This is the fourth presidential election hearing. Read all records to see if anyone mentions the disputed election in any way. That’s not part of our thinking. That’s not what we came here for. . .
mark filipino
So Jay Powell says, in not so many words, “No, we are not influenced by political pressure.” But is the Biden campaign doing anything to nudge the Fed, or is it sending a more clear “please do me a favor” signal? Lower interest rates before the election.
edward luce
I hope something happens that puts pressure on Biden. It is quite another thing to overtly pressure Jay Powell and his Fed colleagues to do so. And Biden hasn’t crossed that line. Of course, Mr. Trump has a stance on this point. He has made it very clear that if Mr. Powell lowers rates before the election, it will be part of some sort of deep state maneuvering to favor Biden. And he delivered in 2019, when the economy was booming. He wanted Powell to cut interest rates. Mr. Powell cut interest rates several times, but wanted more monetary easing than he had in store. And since then, it has very clearly, very publicly labeled Powell as a disloyal lieutenant. He appointed Mr. Powell to the Fed, but he makes no bones about the fact that he feels Mr. Powell betrayed him and that he would fire Mr. Powell if reelected. He will fire Mr. Powell regardless of whether he has the legal authority to do so.
mark filipino
The Fed is supposed to be a very independent institution that makes its own decisions regardless of who is in office, so hearing that the Fed is influenced by political pressure, even implied, is It’s a big deal. And I wonder what will happen if the Fed succumbs to political pressure. Has that ever happened in U.S. history?
edward luce
What happened in American history? Although not in recent American history, the most infamous is when Nixon was president up for his 1972 reelection bid. He managed to arm-twist then-Fed Chairman Arthur Burns into cutting interest rates at a completely inappropriate time. And that helped him sow the seeds of the inflation of the 1970s. So it was very clear that this was a textbook Fed mistake that every economist learns about. And since then, there has been no repeat of the infamous Nixon-Burns incident. However, as we explained earlier, Trump tried to do this with Jay Powell in 2019.
claire jones
So I think that’s particularly concerning at this time because of the fiscal situation in the United States. In other words, even under the Biden administration, there is a significant budget deficit. As you know, spending is going to increase quite a bit, and it looks like the national debt is going to increase quite a bit. And if Trump starts discussing things like firing Powell before the end of his term, the Trump Treasury Premium would raise U.S. borrowing costs because markets are nervous about what Trump wants to do. I think there’s a good chance of getting something. Central Bank.
edward luce
I want to emphasize that President Trump’s economic plan includes 10% tariffs on all imports, 100% tariffs on some goods such as cars coming from Mexico, and 11 million illegal immigrants. It includes roundups and deportations, and general economic uncertainty. All trade fronts are highly inflationary. Subtracting the size of the labor market, he adds 10 percent to the price of everything he imports, and of course we are potentially seeing a repeat of the hyperinflation era of the Nixon-Arthur-Burns era.
mark filipino
Okay. I’m going to take a short break. And I’m actually going to connect something that I found on FT.com today. This is very good and is basically a central bank interest rate tracker. And you’ll see all the interest rates, cuts, and increases that have happened around the world over the past few years. I’ll put a link in the program notes. If you’re a central bank monetary policy buff, you’ll definitely love it.
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mark filipino
We’re back to the exit polls. There, we talk about something that didn’t happen during the campaign and apply very rigorous political analysis to it. The big news of the past few weeks has been Kristi Noem, the governor of South Dakota and Trump’s vice presidential front-runner, in a newly published book that says she shot and killed her young dog, a puppy, because she thought she couldn’t train it. , that’s what I wrote. What do you all think about this?
edward luce
This is devastating for her as she auditions for Trump’s running mate, Kristi Noem. Even her conservative allies, including Fox, are antagonizing and ridiculing her over this. And she did the same in response to her claim that she met North Korean dictator Kim Jong Un. It turned out that she had not met Kim Jong-un. So it’s really bad for her to have veep stakes.
mark filipino
Claire, what do you think?
claire jones
Last time, I think, when Biden was facing Trump, there was an ad saying that Trump is the only US president who doesn’t own a dog.
mark filipino
it’s true. He had never had a pet and was the only one without one.
claire jones
Yeah. And I thought that was saying a lot, but not very much. I think that was good. Yeah. As someone who owns dogs, which I love, the fact that he doesn’t have a dog is kind of a stain on Trump.
edward luce
It’s progressing steadily. Stay strong, Claire. I have two cats.
mark filipino
I also have a cat. So, Claire, as the only dog lover here, I suggest you be kind.
edward luce
Yeah. You are outnumbered. (laughs)
mark filipino
Okay. I would like to thank our guests. Ed Ruth is the FT’s U.S. national editor. Thank you, Ed.
edward luce
I’m always very satisfied.
mark filipino
And Claire, our pet dog. (Laughter) She covers international financial policy at the Financial Times. Thank you, Claire.
claire jones
I’m happy to be able to participate. Thank you, Mark.
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mark filipino
this is. . .was swamp notea US political show from FT News Briefing. If you would like to register for swamp note There’s a link in the show notes to the newsletter that Ed is co-writing. Our show is mixed and produced by Ethan Plotkin. Lauren Fedor and Sonya Hutson are also producing. We would like to express our sincere gratitude to Mr. Pierre Nicholson. I’m your host, Mark Filippino. The executive producer is Topher Forhecz and Cheryl Brumley, who is the FT’s global head of audio. Original song by Hanis Brown. Check out more US political analysis from the Financial Times next week.
