What’s a central bank supposed to do?

Brendan Greeley (0:06)

Pushkin.

Katie Martin (0:09)

Now, we've been talking a lot on this humble podcast recently about Donald Trump's efforts at a hostile takeover of the Federal Reserve, the Central Bank of the mighty US of A. One thing that may not be obvious, though, when you really, really think about it, is why this stuff actually matters. Why is independence important at a central bank? Is it important? Today on the show, we're going to answer exactly that. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in soggy London. Now, it always helps when you're talking about something complicated like this to talk to an expert. And let me tell you something, listeners, that is not Robert Armstrong off of the Unhedged newsletter.

But he is here anyway. It is, however, Brendan Greeley, formerly of this parish at the FT, who was forgotten more about the history of the Fed than Rob or I will ever know. Brendan, I heard that you were coming on the show today fully 20 minutes ago, but it's a total delight to speak to you. How are you?

Brendan Greeley (1:24)

I am so excited to be here. I'm a frequent listener of this podcast. I can't believe I get to be here with the great Katie and Rob.

Katie Martin (1:33)

Flattery.

Brendan Greeley (1:33)

Well, sorry. I get to be here with Katie and the great Rob or the great Katie and Rob.

Katie Martin (1:39)

Brendan, kindly lay out your credentials in this matter. You know stuff about this stuff, right?

Brendan Greeley (1:46)

Yeah. I covered the Fed for Bloomberg Business Week and then Bloomberg Television and then for the Financial Times for about 10 years. Over that time, I began to realize that there was something that I was missing, that there was a language that I had learned from economists about how the Fed works that sort of stopped making sense to me and it stopped being good at predicting what was happening and it stopped being good at explaining why certain things were happening when the Fed acted the way it did. So I went back to school. I'm currently getting my PhD in the history of finance and money at Princeton and I have passed my general exams, which involves reading a pile of 200 books. It's an exquisite torture that you pick out for yourself and been examined on their contents and I'm currently writing a dissertation.

Robert Armstrong (2:34)

Most people, when they find something doesn't make sense to them, they just change the topic, Brendan. They don't get a PhD, you know. It seems like a very extreme response.

Brendan Greeley (2:46)

I mean, it is, Rob, but I will take that point from literally anyone else on this line. I think you have a PhD in philosophy, do you not?

Robert Armstrong (2:57)

No, I do. I made the same mistake that you did, but I had the excuse of being young when I did it, whereas you're doing it when you are old. So Brendan, let's get to it. I am worried about the Trump administration trying to take over the Fed. Most recently, they're literally going around in Fed governor's dirty laundry to find out things they can fire them for. And I think this is an awful development, and it makes me worry about things like inflation. It makes me worry about a whole range of things. Are we right to be as worried as we are?

Brendan Greeley (3:39)

Yes, absolutely. And you're also right to point out that what happened with Lisa Cook is different from any kind of political pressure on the Fed that's gone before. And we can talk about the long history of politics in the Fed, and the Fed is not blameless in that long history. But what happened with Lisa Cook? I sort of feel uncomfortable talking about the specific allegations, because that's clearly not the point of them. Yes. It's utterly irrelevant what it is that he found. The point is to do two things. One is to sully her and to see whether he can get her to climb down on her own. Thankfully, she seems to have decided not to do that. I do wish that the Fed had put out a more full-throated defense of her. But the other thing that this accomplishes is it puts everybody else in the entire Federal Reserve system on notice. Whatever secret you might be covering up, that's not even a secret, it's anything that might make you look awkward.

Robert Armstrong (4:34)

Anything. Yeah.

Brendan Greeley (4:35)

We will find it and we will make it public. In the meantime, the way you prevent that from happening is doing exactly what we've made it clear we want you to do.