Jim Bianco on Division at the Fed and Jerome Powell’s Controversial Decision to Stay

**Jack Farley** (0:00)
We are here, another edition of Monetary Matters, live on Monitoring the Situation. I'm Jack Farley.

**Max Wiethe** (0:05)
And I'm Max Wiethe. We've got a big day, Jack.

**Jack Farley** (0:07)
It's almost a comically large amount of news we have to get into. We're gonna be speaking about the Fed in just a moment with Jim Bianco of Bianco Research.

**Max Wiethe** (0:15)
We've had a little bit more time to process what happened with J-PAL. You've been getting a lot of flak today because you believe that J-PAL staying is a mistake.
Why do you think that's a mistake?

**Jim Bianco** (0:26)
Because of the reason he's staying. The reason he is staying on with the Fed is because he believes that he doesn't trust the administration to properly investigate the overruns in the building contract, in the buildings or renovations of the Federal Reserve buildings. Okay, fine. So you're going to stay on and you're going to hold the institution hostage in order to get an effective outcome that you want. And I thought his outcome was pretty clear. The Fed is an independent institution. No one is allowed to ask any questions.
If they want to build a marble edifice to themselves, that's going to run billions over cost, don't ask any questions. You're not allowed to ask any questions about how they do monetary policy or anything else. Marin Eccles is the only other Fed chairman who stayed on as a governor. In the 1940s, he stayed on because at the end of World War II, we had Bretton Woods, we had with Bretton Woods, the World Bank, the IMF, and he recognized that there was a period of epic change coming, and he wanted to shepherd the world into this new era. Seems like what we got 80 years later is another term of epic change, and Jay Powell wants to stand in the doorway and prevent that change. You're not allowed to ask questions.
He said he wants the institution to remain the traditional way it's maintained. I think that the institution is changing. I've welcomed those changes. I think those changes are good, and he just announced he's not going to stand in the way of those changes. He wants to stand in the way of those changes, and this is going to cause a lot of grief at the Federal Reserve, I think at the end of the day. They're not going to like what's going to happen next. I'm not just talking about what Trump is going to do.
Let me just go off one other thing. One of the changes, what about the independents of the Fed? I've been arguing now for months.
The independence of the Fed, and I'll say it bluntly, is largely solved. It is solved because we now have 12 independent voters. Today's vote was an 8-4 vote. The last time we had four dissents was October of 1992, 34 years ago. This is the world we live in now. Everybody is going to vote independently. I've been arguing, actually for years, that the group think at the Fed, and everybody waits for the chairman to tell them what to do, and we all parse every word that the chairman says has produced more problems than issues that it has solved. We are getting away from that right now. Now, Chairman Powell says he doesn't like that, and he wants to see the Fed be more independent. He said he's going to be in the background, and he doesn't want to be disruptive. So here's my question for you. We're already at 8-4. That's not that far from 6-6.
What happens if we get to 6-6 or 7-5, and Chairman Powell gets to decide by himself on policy, and he's already said, I'm not there because I think I can bring something to monetary policy. That's not what he said. He said, I'm there to prevent change and to protect the institution from Donald Trump. So he is making an overtly political statement by staying in the manner he's staying. In the early part of this, and it's the last thing I'll say on this, I could understand what he was doing, but then Tom Tillis, Senator from North Carolina, took up the cause and put a block on Kevin Warsh's nomination.
There was an agreement last week. The Inspector General of the Federal Reserve will investigate the building. If the Inspector General of the Federal Reserve finds any wrongdoing, then the Inspector General could recommend criminal charges to the Justice Department. It's not good enough for Jay Powell. He wants no investigation, it seems like. Oh, but the Justice Department said they could bring charges later or have an investigation later on. They can do that to anybody for any reason at any time. That is not a statement, that is not a threat, that there will be a future investigation. And he is going to hold the institution hostage so that they don't investigate. That is a giant mistake for the institution.