Live on Bloomberg TV

00:00Extensive experience at the Federal Reserve inside that institution. How do you think they'll be responding to this this morning? They're going to be very unhappy because this is a real assault on the Federal Reserve's independence. And as we know, a central bank's independence is really important for good economic outcomes. There's been a reason why we've been moving in the direction of greater central bank independence over the last four decades across the world, because central banks that have independence in terms of how they conduct monetary policy to achieve the objectives set for them by Congress and the administration, do a better job in controlling inflation and keeping the economy on a stable path. So this is assault on that. And I'm sort of surprised that the markets are so relaxed about this. Now, maybe that because we don't know where this is going to go. We don't know whether Lisa Cook is going to be able to stay in office. It certainly looks like the path to getting her out is quite high because it doesn't seem that the four cause would extend to to talk to the allegations against her. But she certainly, at very minimum, deserves her her day in court. Well, Bill, it seems like that is the system that is emerging, that we're understanding the contours of Fed independence from the courts, be it the most recent ruling that said other independent agencies could have their heads fired by Trump, but not necessarily the Fed without cause. This may be defining having the courts define what causes. If you have a system where it's not encoded in law, but instead is being interpreted by the courts. What does that say about the fragility or the stability of Fed independence? Well, it sort of has to be interpreted by the courts, because this is there's there's no precedents for this. So we don't really know what the law is until the courts actually rule on it. So I have to the courts have to decide, you know, what what what what's the law intended to do? You know, I think most people think that, you know, what Lisa Cooke did does not represent for cause dismissal from her governorship, but it's up for the courts to adjudicate that. So if we're in a scenario where it seems like we might be that this is a Fed that wants to start to ease policy, that it wants to cut, but because of all these proceedings in the background, you get some real tension on the long end of the curve. What would the Fed do in that case that it wants to cut, it wants to ease, but the markets do something different. Well, I think the Fed will do what it thinks is appropriate to achieve its objectives. Unemployment and inflation and in policy certainly signal that, as Jackson Hole remarks, that he's worried about the downside risk to the labour market more than he's worried about the upside risk to inflation. And so his view that monetary policy is currently restrictive, he basically set a signal that it's highly likely the Fed is going to cut rates in September. And I don't think this changes any of that. What it does change is down the road, when the Fed Reserve acts, when the Fed Reserve, if they cut rates subsequent times, is that because they think that's an appropriate thing to do for the economy or because it's because they're under pressure from the Trump administration? You know, putting a lot of pressure on the central bank is, in my mind, somewhat counterproductive because it basically causes people to start to wonder, is the central bank doing what is appropriate to achieve its objectives or is it caving in to pressure from the administration? But you've got great contacts. Do you sense that shift is already underway? No, I don't think so. I think that I think there is a case to cut rates in September. I'm not sure I would be in that camp. I mean, I is convinced that monetary policy actually is restrictive today. And I am more worried that the rise in inflation caused by the pass through of the tariffs will could end up being more persistent and then powders. But that's that's a reasonable point of disagreement. Yeah, I think that if the Fed cuts rates in September is not a big event, the market certainly anticipates rate cuts over the next year. They expect the Fed eventually to cut rates back down to what they view as sort of a neutral federal funds rate of around 3 to 3 and a half percent. Bill, out of interest, why are you more concerned about inflation? In very simple terms, the Fed chair has basically come out and said he's not worried about upside risk to inflation because of the downside risks to employment. What makes you more concerned? Well, four years of being above your inflation objective. And you know, every year you're above your inflation objective. That increases the risk that people start to view this as the steady state. And then that starts to flow into wage settlements and then it becomes very difficult to get rid of the inflation that's been embedded in the system at that point.

No schedule data available.

BTV Channel FinderWatch BTV in your area

Bill Dudley Sees ‘A Real Assault’ on Fed Independence

More From Bloomberg Surveillance
All episodes and clips

Bloomberg Technology
The only daily news program focused exclusively on technology, innovation and the future of business from San Francisco. Hosted by Emily Chang.
More episodes and clips