Fmr. Dallas Fed President: New Fed Chair will still have to carry FOMC, despite what President wants

Key Concepts

• Federal Reserve Independence: The core debate revolves around maintaining the Federal Reserve’s independence from political pressure, specifically from the President.
• Jerome Powell’s Position: The discussion centers on the possibility of Jerome Powell stepping down as Federal Reserve Chair amidst scrutiny and pressure.
• Potential Replacements: Several candidates are mentioned as potential replacements for Powell: Kevin Warsh, Kevin Hassett, Christopher Waller, and Rick Rieder.
• FOMC & New York Fed Influence: The importance of the Federal Open Market Committee (FOMC) and the New York Fed’s Vice Chairman in shaping monetary policy is highlighted.
• CPI Data Anomalies: Concerns are raised about potential irregularities in the Consumer Price Index (CPI) data, specifically the omission of motor vehicle insurance costs.
• Political Pressure on the Fed: The extent to which the President is attempting to influence Federal Reserve policy is a central theme.

The Situation Surrounding Jerome Powell and Federal Reserve Independence

The conversation focuses on the escalating pressure on Jerome Powell to potentially step down as Chair of the Federal Reserve. This pressure stems from criticism from the President and associated figures like Jeanine Pirro and Senator Cramer. Richard Fisher argues strongly against Powell’s resignation, stating it would be detrimental to the independence of the Federal Reserve. He believes Powell has the support of global central bank governors and key figures like Jamie Dimon, and that forcing a change would not be an “elegant solution” despite potentially being appealing to the Presidency. Even French Hill, a Republican Congressperson, views the ongoing scrutiny as a “waste of time.”

The Controversy of Powell’s Video Message

The discussion addresses Jerome Powell’s unusual decision to release a video message addressing the scrutiny he’s facing. While acknowledging the rarity of such a move, Fisher defends it, stating Powell had “had enough” after years of being “taunted” by the President. He dismisses the sources of the initial reports (Pirro and Cramer) as biased and lacking credibility, emphasizing that Powell is likely acting on the advice of strong legal counsel, potentially facing personal lawsuits or indictment. “He’s being sued personally or indicted personally, possibly,” Fisher states.

Implications for Potential Replacements

The conversation explores how the current political climate might affect potential candidates to replace Powell. The four reported finalists – Kevin Warsh, Kevin Hassett, Christopher Waller, and Rick Rieder of BlackRock – are considered. Fisher believes the situation might make candidates hesitant, as they would be aware of the risk of facing similar pressure to conform to the President’s wishes. However, he posits that these candidates are all “capable people” who understand the dynamics of the FOMC and the importance of building consensus. He notes Kevin Hassett’s current position within the White House potentially sets him apart.

The Role of the New York Fed and Future Rate Cuts

Fisher emphasizes the significant influence of the New York Fed’s Vice Chairman within the FOMC, stating they hold the “voice” and should not have the Fed “diddle with.” He believes the current New York Fed President, Steve Myron, is unable to effectively push the President’s agenda. Regarding future monetary policy, Fisher doesn’t anticipate a rate cut at the next meeting. He points to an anomaly in the recent CPI data – the omission of motor vehicle insurance costs – which he believes may have artificially lowered the reported inflation rate by as much as 0.1%. He suggests inviting Peter Boockvar onto the show to discuss this data point further. He predicts that if the Fed doesn’t cut rates, the President will likely resume his criticism of Powell and the committee.

FOMC Dynamics and Committee Consensus

Fisher underscores the challenge any new Fed Chair would face: needing to “carry 18 other people at the table.” He highlights that a successful Chair must be able to build consensus within the 19-member FOMC. This point reinforces the argument against a politically motivated replacement for Powell, as a Chair lacking the ability to navigate these internal dynamics would be ineffective.

Synthesis/Conclusion

The core takeaway is the critical importance of maintaining the Federal Reserve’s independence. The discussion reveals a high-stakes situation where political pressure is being exerted on the central bank, potentially jeopardizing its ability to make objective monetary policy decisions. While the possibility of Powell’s departure remains, the prevailing argument, particularly from Richard Fisher, is that such a move would set a dangerous precedent and undermine the credibility of the Federal Reserve. The potential replacements face a challenging landscape, and the future direction of monetary policy remains uncertain, heavily influenced by both economic data and the ongoing political dynamics.