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Federal Reserve takes key role amid the COVID-19 downturn

Yahoo Finance Editor-in-Chief Andy Serwer, HuffPost Washington Bureau Chief Amanda Terkel, Yahoo News Editor-in-Chief Dan Klaidman, and Yahoo Finance Reporter Brian Cheung discuss the role the Federal Reserve plays in the US economy amid the coronavirus.

Video Transcript

ANDY SERWER: Welcome back. We're now joined by Brian Cheung, who covers the Federal Reserve for Yahoo Finance. Brian, good to see you.

BRIAN CHEUNG: Thanks. How are you?

ANDY SERWER: Good. So can you talk us through the Federal Reserve's actions this year? And are those moves a big reason why President Trump has any sort of economic case to make to the voters?

BRIAN CHEUNG: Well, you know, Andy, it did seem like in 2019 the president was very concerned with what was going on with Fed policy. We don't need to rewind very far to know that the president was very actively tweeting about how disappointed he was with the Federal Reserve not more aggressively cutting rates in the face of the US-China trade war last year. But obviously, the changes in the economy have been very different with the onset of the pandemic at the beginning of this year.

And the Federal Reserve now it does indeed have interest rates backed up to near zero. So because of that, we haven't heard much from the president with regards to what the Fed policy has been. Although, it is definitely a case that the president might prefer to see negative interest rates, like we've seen in the European Central Bank and the Bank of Japan, as opposed to what we have right now.

But what's important to note is that when it comes to an election as big as this, there are some major implications for what shape the central bank will take on under either a Biden or a Trump administration. Although, the chatter has not yet begun about whether or not there would be certain names floated under a certain Trump or by an administration who would head the central bank. This is the world's largest and most important central bank.

Because it obviously steers and steadies the world's largest economy. Which means that whoever ends up taking on the building on Constitution Ave come January next year, or whenever the next Fed chairman is appointed, would really have quite consequential effect on the path of the US economy for the four years that follow.

DAN KLAIDMAN: So Brian, you mentioned Trump's criticism of Jerome Powell. My favorite quote, tweet, by the way was, "Where did I find this guy, Jerome?", that he tweeted back in 2019. And he says, "I guess you can't win them all." But it raises a question for me.

How unusual is it for a president to, you know, for there to be so much open hostility directed at a Fed chairman? A sitting chairman of the Federal Reserve from a president? I recall in the past there has been tension between, you know, there was tension between Ronald Reagan, and Paul Volcker.

And Andy, before the show, reminded me that George H.W. Bush blamed Alan Greenspan for his losing the election to Clinton. But happening openly like this?

BRIAN CHEUNG: Yeah, it is indeed very rare. And even when you bring up H.W. Bush, he made those remarks criticizing the Federal Reserve after he had already left office. So to openly criticize a Federal Reserve chairman while you're in office is quite rare. You do have to rewind to 1982 when Reagan, at the time, very politely criticizing in comparison the Fed Policy.

As you mentioned, Volcker raising interest rates quite dramatically in the Volcker Shock. Reagan said at the time, quote, "It was the wrong signal." Very different language than what we had heard from the President who has tweeted on many accounts, things like, "Chairman Powell can't putt. He has no touch. He's a terrible communicator. He has no guts." And then the famous August tweet from last year. "Who is our bigger enemy, Jay Powell or Chairman Xi?"

Shortly before then raising tariffs. That was at the end of August last year. It seems like a million years ago. But we do have to remember that, that type of language is completely unusual when it comes to the dynamic between the Federal Reserve and the White House. Which tends to have that silo between them.

It doesn't usually-- it isn't usually a case that there's kind of partisanship with who's at the Fed, even though it is, of course, a political appointee. You have to remember that Ben Bernanke was appointed by George W. Bush. That was renewed under an Obama administration, even with the change the political parties.

Yellen was appointed by Obama in his second term. And although it did seem like maybe there was the possibility that Trump could keep her at first, he ultimately ended up going with someone else. Because he wanted to, "make his mark on the Fed", was the way that he described it. But keep in mind, Jay Powell was a person who's been at the Fed for a long time.

He is someone that was actually appointed under the Obama administration, even though he is a registered Republican. But again, the type of language, calling him a putter who has no touch. That's extremely, extremely unusual.

DAN KLAIDMAN: Can a president fire a Federal Reserve chairman?

BRIAN CHEUNG: That's a great question. And the discussion of that actually pulled up at the end of last year, the middle of last year when Trump was really firing off all these tweets. The answer is, no. At least coming from the Federal Reserve.

Now, of course, from the White House, the president had tweeted, actually was on the record, as saying he did think he had the authority to do so. It's a good thing that didn't really end up escalating beyond those types of jawing words. Because it's possible that a court would have had to take that up. But-- [INAUDIBLE]

[NO AUDIO]

ANDY SERWER: I think Brian Cheung's audio went out. So we'll see if we can get him back. In the meantime, we were talking about-- [INTERPOSING VOICES] Are you back, Brian?

BRIAN CHEUNG: I am. Sorry about that.

ANDY SERWER: I don't know. Maybe yeah, got to take a drink of water there or something, right?

BRIAN CHEUNG: Yeah. I'm still here, I think, if you've got me.

ANDY SERWER: Go ahead. Actually, I think Amanda Terkel has a question. And we can pick it up there. Go ahead, Amanda.

AMANDA TERKEL: Sure. So Brian, you mentioned that there haven't been many names floated yet for who Biden might pick if he becomes president for the Fed. So do you have any indications though, on what a Biden policy would look like? Or a relationship with the Fed would look like? Or what type of person he might be looking for?

BRIAN CHEUNG: Well what's interesting about this is, because of the differences that we've seen between President Trump and Chairman Powell, regardless of whether or not it's a Biden or a Trump administration, it's very likely there might be someone new at the head of the Federal Reserve. Now what's interesting is that we don't have any sort of names floated from inside the Fed yet, about who a Biden administration might pick.

But you have to consider that, a former Fed Chair, Yellen, is or has advised the Biden campaign before. She's not a permanent advisor. The permanent economic advisors to his team are the likes of Heather Bouchard, from the Washington Center for Equitable Growth, in addition to Jared Bernstein. A familiar name in the Obama administration.

He's currently at the Center on Budget and Policy Priorities. The others have also advised the Biden campaign on a one off situation. Things like University of Michigan Professor, Lisa Cook, in addition to Jake Sullivan. So there are some names that could be influential in picking ultimately who the Fed chair would be under that Democratic administration. We don't exactly have finalized names yet. Of course, it's possible, they could still renominate Powell there.

On the Trump side, it does seem like he's been trying for some time to get new names at the Federal Reserve. Keep in mind, that we're talking about the chair. But the Fed itself has five seats. So four in addition to the chair. Currently there is one vacancy there right now.

And what's interesting is that the Federal Reserve has been, obviously, floating a bunch of-- or rather the White House has floated a bunch of names. Like Herman Cain, Stephen Moore. As of late, Judy Shelton, a former economic advisor to the Trump campaign. Now, it remains to be seen if they can push that nomination through before the end of this Senate session.

But if they are able to do that, people do say that President Trump might want to nominate Judy Shelton as a possible Fed Chair to replace Jay Powell. But as I mentioned, there's a lot of moving parts. They need to get that Senate nomination confirmed first, and then he would need to re win the election, or win the 2020 election, in order to put that person at the top.

ANDY SERWER: Right. Yes. A lot of stuff to potentially sort out after the election, Brian. Thanks very much for that insight.