How a Former Fed Vice-Chair Is thinking About the Next Fed Chair

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

So Joe, Trump nominated Kevin Warsh to be Fed Chair last week. We've been talking about it on the show. Obviously, this has big market implications, but I'm starting to think that the sociological questions and aspects of this are kind of more interesting.

Joe Weisenthal (0:41)

I'm so intrigued by the constellation of people who have come out either in support or opposition of this name. It is not like any other nominee that I can recall, where you have fairly sort of mainstream, even sort of liberal names like Jason Furman or Geeta Gopinath, saying there's a great pick, et cetera. And then you have Paul Krugman and Neil Dutta saying it's a terrible pick and so forth. It cuts in ways that I would not have necessarily anticipated, not like any other Trump pick that I recall.

Tracy Alloway (1:12)

Yeah, it is very split. And it feels like there's a split within Warsh's own thinking as well, right? Because here we have a guy who has talked about wanting to overhaul the Fed, right? And even break some heads, I think, was a direct quote that we've mentioned before. He has given a speech that is literally titled an Ode to Independence at the Central Bank. But at the same time, there's a big question mark about how and why he has suddenly seemingly gone from an inflation hawk to someone who's advocating for low rates.

Joe Weisenthal (1:47)

Totally. And of course, I think, I mean, for, you know, just to be blunt, this would have been something that any nominee from this administration to some extent, there would have been question marks around because, you know, obviously Trump has been very critical of Jerome Powell, despite the fact that he nominated him himself. And it's clear that he wants a low rates now kind of guy in there. He said after the nomination, he's like, you know, he didn't make many promises, but he's gonna, I think he's gonna be a low rates guy. And then he joked a couple of days later that he was gonna sue. That wasn't, you know, he was joking. He said he was gonna sue if Warsh...

Tracy Alloway (2:22)

Joke. I'm doing air quotes right now.

Joe Weisenthal (2:25)

Yeah, joke, air quotes. You don't know it, but this has been the big thing. And so the question is the degree to which an incoming Fed chair, presumably if he passes the Senate, which isn't guaranteed, but if he passes the Senate, can establish his commitment to what he has long talked about, which is Fed independence, while also not immediately angering the guy who nominated him. To the extent that that matters.

Tracy Alloway (2:50)

Exactly right. So we need to talk about all of this.

Joe Weisenthal (2:53)

Yes.

Tracy Alloway (2:53)

Get a little bit more color on, I guess, Fed board culture.

Joe Weisenthal (2:57)

Yeah, yeah.

Tracy Alloway (2:59)

Political machinations as well and market implications, of course. And we really do have the perfect guest. We're going to be speaking with Richard Clarida. He is, of course, Global Economic Advisor at Pimco, a Professor of Economics at Columbia, and most importantly, for the purpose of this particular conversation, he's a former vice chair of the Federal Reserve Board. So honestly, the perfect guest. Rich, thanks for coming back on the show.

Richard Clarida (3:25)

Thank you. Looking forward to our discussion.

Tracy Alloway (3:28)

So why don't I just start with the very obvious question and we can dig in from there. But last week, when the news broke about Warsh being selected by Trump, what was the first thought that went through your head?

Richard Clarida (3:41)

I think it's a very sensible choice. It makes sense along important dimensions. In particular, it's important because I think based upon background and what he's been writing recently, that Warsh will work very well with Scott Besson at the Treasury. There is Fed independence that we'll get into, but it's important as a practical matter that the Fed work well with the Treasury. And so it makes sense along a lot of dimensions.

Joe Weisenthal (4:11)

Actually, let's just get into that because I do find that to be very interesting. Say more about working with the Treasury. Some people would say that is not the Fed's job. In fact, I would say Kevin Warsh, going back to the immediate post-Great financial crisis era, had talked about how, for example, it's not the Fed's job to backstop fiscal policy. It's not the Fed's job to enable larger deficits, which he, I believe, saw QE as enabling. But from your perspective, talk to us about what a positive relationship between the Fed chair and the Treasury secretary looks like.