00:00Give us your read on the U.S. economy right now, because the economic data seem to suggest that
00:05it's holding on pretty well. It's solid, and the labor market is also not deteriorating,
00:12even as inflation seems like it's on the right path.
00:15Well, hi, Scarlett. Yes, as we used to say during my time at the Fed, the U.S. economy's in a good
00:20place, and it is. It's been remarkably resilient. Growth for 2025 will probably come in north of
00:292%, finishing strong. Inflation's been basically flat. It did not really move up as a result of
00:36the tariffs. We've had strong capital spending in the tech sector. Now in 2026, you've got the big,
00:41beautiful bill, which is providing a fiscal impulse. You've got commitments from foreign
00:47countries and companies to invest in the U.S., and obviously the capital spending boom in the tech
00:53sector continues. And so, indeed, I think you summarized it well. The economy's in a pretty
00:59good place. It's in a pretty good place, certainly based on the headline economic indicators. Yet,
01:05when you look at the anecdotal, and here I'm referring to commentary from airlines to P&G to 3M,
01:11so far this earnings season, a lot of it's focused on uncertainty, on caution, on what they're calling
01:17low consumer confidence. Rich, how much do you read into this downbeat commentary from companies on
01:22the front line? Well, you know, Scarlett, I think both can be true at the same time in the sense
01:29that you have a very positive impulse from the tech sector, from tech capital investment. And
01:34obviously, households that own a lot of stocks and own their own home have done quite well because of
01:40the wealth effect, you know, the K-shaped economy that you talked about. But as you move outside of
01:45those sectors, I think there is, it is a more of an uneven story. And I think uncertainty is
01:52more relevant. And this may well be a year when the aggregates and averages are hiding a lot of
01:59interesting differences in the economy. All right, let's turn now to the Federal Reserve,
02:03Rich. President Trump saying, of course, that he has finished interviewing candidates to serve as
02:08the next Fed chair. And earlier, London Business School lecturer Rebecca Homkes appeared on Bloomberg
02:14surveillance, where she gave her take on who Trump may choose. Take a listen.
02:18We've really had different styles of leadership over the past decade or so. You know, Chairman Greenspan
02:23ran a very centralized, he was a much different leader. Ben Bernanke went much for consensus. We
02:29didn't have Janet Yellen in for very long. We're learning a lot over what Chairman Powell is doing.
02:33You know, and we can handle that. You know, the Fed is an independent body. Different leadership
02:37styles are to be expected. And we've seen success from different ones. You know, I'm not quite sure
02:42what President Trump is looking for in the new one. But we do know that he very much values loyalty.
02:46And that's probably part of the decision. Rich, how do you size up the remaining front-running
02:52candidates? And how do you think President Trump is going to size them up? Well, of course, only
02:57President Trump knows where he's going to land. What I would say is I know all of them well. It does
03:02appear as though Kevin Hassett and the president have decided that perhaps his best role is to stay
03:09as the National Economic Council director. So that leaves Governor Waller, Kevin Warsh, and Rick
03:15Reeder. I know each of them well. I think each of them would be an effective Fed chair. But they bring
03:21different strengths and backgrounds to the role. Chris Waller is a world-class macroeconomist. He's
03:27also a good forecaster and good communicator. In the case of Kevin Warsh, Kevin Warsh was a Fed
03:33governor. He's had very thoughtful and interesting things to say about changing the Fed as an
03:39institution and in particular thoughts on the balance sheet. And then finally, Rick Reeder is a
03:45very respected, legendary investor in financial markets and obviously would bring a lot of
03:51connectivity to the bond market. So all three bring something a lot to the table. It's really
03:59going to be the call of President Trump and we'll see where he ends up. At this point, would any of
04:05those picks surprise the bond market? I think right now it's pretty even in the betting odds. I guess
04:13right now what would be a surprise? There'd be two surprises. One would be if Kevin Hassett decides and the
04:20president decide they do want him at the Fed after a week ago saying no. And then, of course, there is
04:25some probability that Scott Besant does it. He would obviously be an excellent and very effective
04:32choice. But again, they've indicated that the president wants Secretary Besant to stay at the
04:40Treasury. But I think among the other three, probably right now, the odds of Waller are a bit lower simply
04:46because he doesn't seem to have that connectivity to either the president or the Treasury Secretary.
04:52And of course, personnel is policy when it comes to the Federal Reserve, which is why the president is
04:56so intent on changing the folks there. The Supreme Court this week heard arguments in the Lisa Cook case
05:02for the governor. They gave no ruling, but the justices do appear to be weary of President Trump's
05:08effort to fire her. What would I mean, do you expect any kind of change in the board of the Fed based
05:16on the Lisa Cook hearing? Or is it safe to say that she'll be in place through the first half of the
05:21year? Oh, I again, not not a legal expert. I just do economics, but I talk to them. And and my sense
05:29from all the reporting, including by Bloomberg, is that the justices both, you know, the more liberal and
05:35more conservative justices seem skeptical of the White House argument that that that it had met the standard
05:44of a for cause removal. And so I think there's a very high likelihood that that Lisa Cook will continue
05:51in this role, you know, throughout certainly much, if not all of this year. I mean, legal scholars seem to think
06:01that one likely scenario is that the Supreme Court merely rules narrowly that she cannot be removed
06:08and bump it back down to the lower courts to finally. And indeed, many justices indicated that
06:14they that they thought that the process was a bit rushed, indicating they would have preferred it to
06:18work through the lower courts before reaching them for final judgment. Do you feel more or less
06:24confident in Federal Reserve independence this week? I'm confident. I'm confident in Federal Reserve
06:32independence. That's clearly what Congress intended in terms of the way the Fed, the Fed is set up.
06:40And I've also said, including on when I've done shows on Bloomberg, that I think an important factor
06:46that supports Fed independence is the financial markets and the bond market. And in particular,
06:51politicians who want low interest rates would not be getting low interest rates if the markets lost
06:57confidence in the Fed's inflation credibility. So so I am I am confident that that Fed
07:03independence will continue and and and be robust. And that is something that Jay Powell is extremely
07:09concerned about, clearly, given the DOJ's subpoenas investigation into his remarks. How does the Fed
07:17chair address the subpoenas in the post decision Q&A on Wednesday, because I feel like it threatens to
07:24take over the entire proceedings? He will be asked that. I think he will have a crisp answer when he's
07:35asked it initially. And I think he'll stick to that answer, probably not really wander too far away from
07:41what he said in that two minute video that was released a couple of weeks ago. I don't expect
07:47him to belabor it. I think he'll have a crisp answer and he'll try to move on would be my guess.
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