LEILA FADEL, HOST:
For more on the Justice Department investigation, we're joined by David Wessel. He's the director of the Hutchins Center at the Brookings Institution. Good morning, David.
DAVID WESSEL: Good morning.
FADEL: OK. So let's start with another section of Powell's statement.
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JEROME POWELL: This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether, instead, monetary policy will be directed by political pressure or intimidation.
FADEL: At the regular Federal Reserve press conferences, Powell's often asked to respond to things President Trump has said or has done, and his comments are usually restrained. What we heard there was not restrained. David, how unusual are comments like this from any Fed chair but specifically from Powell?
WESSEL: Well, first of all, the situation is unusual.
FADEL: Yeah.
WESSEL: We haven't had presidents who have assaulted the Fed the way President Trump has. But you're absolutely right. Usually, the Fed chairmen are very careful what they say in public, and they don't want to antagonize the White House or members of Congress. It looks like they just pushed Jay Powell too far, and he came out with all guns blazing. It's very unusual, and it's particularly unusual for him. He's been very careful not to antagonize directly the president, and that era is over.
FADEL: Why does it matter that a central bank like the Fed is not controlled by the president?
WESSEL: Well, elected politicians in the United States long ago decided that the economy does better when the Fed can set interest rates at the levels it deems best to achieve its mandate, which is maximum employment and stable prices. And elected politicians in the U.S. and in almost every other major capitalist democracy recognize that if they control interest rates, they're just tempted to keep rates too low to goose the economy now before the next election at the cost of more inflation later. And history supports that notion.
I mean, countries - usually emerging markets or developing countries where the head of state has muscled the central bank into lowering interest rates - in the past, countries like Turkey, Argentina, Brazil - end up with unwelcome inflation. But President Trump doesn't buy this argument. He has made clear he wants the Fed to do what he wants, which is to lower interest rates more than the Fed has already. And he said he will appoint a successor to Powell who will promise to do that. He's been explicit about that.
FADEL: What are the possible consequences if Trump gets his way and essentially controls the Fed board? I mean, what would happen to things like people's mortgages or credit card debt?
WESSEL: Well, let's be clear. We don't know for sure that Trump appointees to the Fed board would do his bidding once they got confirmed by the Senate. And interest rates are set not only by the Federal Reserve Board but by regional Fed bank presidents. They're not political appointees, and they will restrain the - whoever Trump puts on to replace Jay Powell. But if a Trump-dominated Fed did what he wanted and it cut rates more than the markets or economists or members of Congress think is justified by economic conditions, the likely result would be more inflation. And it would undermine the confidence of global investors in the United States and the standing of the U.S. dollars, the world's reserve currency.
Indeed, in early trading this morning, the markets have reacted negatively to this. Bonds have - and stock market and currency markets, the value of the dollar, have all sort of recoiled a bit. And I think that if the market today does react strongly to the latest development, there's a chance that Treasury Secretary Scott Bessent or someone else will persuade the president and the attorney general to back off. Or maybe if more Republican senators, besides Senator Thom Tillis who spoke on this yesterday, will talk the administration out of this.
FADEL: David Wessel is the director of the Hutchins Center at the Brookings Institution. Thank you for your time, as always, David.
WESSEL: You're welcome, Leila.
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