--:-- Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza.
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--:-- Jessica Mendoza: Before he was president, Donald Trump had a signature catchphrase. You're fired. You're fired. You're fired. You're fired. You're all fired. You're fired. Go. On his reality series, The Apprentice, President Trump made a big show of firing people. It's a philosophy he's brought into his presidency, firing agency heads and employees across the federal government. And there's one person Trump has made really clear he wants to get rid of. Jerome Powell, the chair of the Federal Reserve.
--:-- Nick Timros: I call him too late, Powell, because he's always too late. I mean, if you look at him, every time I did this, I was right 100 percent. He was wrong. The president's just very unhappy.
--:-- Jessica Mendoza: That's our colleague Nick Timros. He covers the Fed. The Fed has paused interest rate cuts that they began last year because they're worried that inflation is going to kick back up here due to the president's tariffs. Trump wants low interest rates, and he's going to do whatever he can do to get what he thinks is necessary there.
--:-- Nick Timros: Jerome Powell's term as Fed chair doesn't end till May of 2026. But already, Trump is searching for a replacement, screening candidates in a way that looks a lot like his reality TV show. And he's looking for a particular kind of person for the job.
--:-- Jessica Mendoza: Trump wants two things from his Fed share. He wants somebody who he can control, who will be loyal to him. And he wants somebody who looks good on TV.
--:-- Nick Timros: Now, what Trump is also going to want is somebody who's credible with markets. So you're going to want to have somebody who is loyal to you, who's credible with the markets. And that could be very hard to find.
--:-- Jessica Mendoza: A few candidates are already vying for the position. A handful of men who are promising to shake up the Federal Reserve and cut interest rates, just like Trump wants. This is going to be the most unusual Fed transition since the late 1970s.
--:-- Nick Timros: We won't have seen anything like this. And that's because the last few times we've had a transition, the incoming Fed chair has pledged continuity with his or her predecessor. And that is not going to happen this time.
--:-- Jessica Mendoza: Everybody who gets the job is going to say, I will not do what Jay Powell did. You almost have to say that as a condition to get the job.
--:-- Nick Timros: So the Fed transition that we are witnessing right now will be unlike any we have seen in modern times. It feels like we're watching reality TV.
--:-- Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, July 10th. Coming up on the show, the contest for the top job at the Federal Reserve.
--:-- Nick Timros: Jerome Powell has led the Federal Reserve since 2018, after being appointed by President Trump. And almost from the get-go, Trump has made his frustration clear.
--:-- Jessica Mendoza: Trump quickly soured on Powell because the Fed was raising interest rates at the time, and Trump didn't want the Fed to keep raising interest rates.
--:-- Nick Timros: In 2019, the Fed cut interest rates under Powell, but not fast or large enough for Trump's liking. Trump wanted lower interest rates. He thought he was getting that with Powell, and he didn't.
--:-- Jessica Mendoza: It took a global crisis for Trump to finally get what he wanted. During the pandemic, the Federal Reserve slashed interest rates to almost zero.
--:-- Nick Timros: Here's Powell in 2020. Economic policymakers must do what we can to ease hardship caused by the disruptions to the economy.
--:-- Jessica Mendoza: At the time, Trump congratulated the Federal Reserve for the move. And that's really good news. It's really great for our country. It's something that we're very happy. I have to say this. I'm very happy.
--:-- Nick Timros: But Trump's happiness with the Fed wouldn't last. In 2022, then-President Biden reappointed Powell for a second four-year term.
--:-- Jessica Mendoza: That same year, inflation soared, prompting the Federal Reserve to raise interest rates to around 5%. In the last year, the Fed has lowered interest rates, but not by much.
--:-- Nick Timros: Trump has called on the Fed to cut rates further, but to his frustration, the agency has refused. Trump has repeatedly signaled that he wants Powell to resign.
--:-- Jessica Mendoza: Powell has said he wouldn't step down.
--:-- Nick Timros: I would say the attacks the noise the volume against the Fed has just been turned up in the second term to a degree that we did really not see in the first term You now have other Trump advisors piling on attacking the Fed saying that the Fed is just idiotic for keeping interest rates this high
--:-- Jessica Mendoza: At times, Trump has even wanted to fire Powell. Can he do that? Well, no president has tried to do it, so it's not clear whether the president can do this.
--:-- Nick Timros: In April, he teased on social media, that Powell's termination cannot come fast enough, And people said, oh, are you talking about firing him? And he said, well, I could get him to leave tomorrow if I wanted him to.
--:-- Jessica Mendoza: And the market sort of freaked out over this, saying, oh, gee, maybe Trump is really serious about it this time. And then he backed down a few days later. He said, no, no, no, I was never seriously considering that.
--:-- Nick Timros: Why is that alarming that Trump would want to fire Powell? Well, you know, there are some people who would say this is the president's right. He should be able to state his view on monetary policy.
--:-- Jessica Mendoza: Monetary policy is going to define the rest of his term potentially. The reason it's a concern in markets is there's always a tension between having a really strong economy today and having economic stability, having inflation not run out of control.
--:-- Nick Timros: So the concern here is if you start to interfere with the Fed's ability to do what it thinks is best for the long-run good of the economy, you could get into more periods of high inflation or economic instability or financial instability.
--:-- Jessica Mendoza: Until Powell's term is up, though, there's not much Trump can do to directly influence the Fed. So what the president has done instead is to turn up the pressure on Powell by looking for his replacement months in advance.
--:-- Nick Timros: If you tell everybody now who your pick for the Fed is going to be, people will stop listening to Jay Powell and they'll start listening to the new guy, right? So that would be one way to undercut Powell, make him a lame duck sooner.
--:-- Jessica Mendoza: Because interest rate policy is forward-looking. Markets don't just care what the Fed is going to do at the next meeting. They care what the Fed is going to do six, nine, 12 months from now.
--:-- Nick Timros: So you undercut Powell if you begin to tell everybody, hey, this guy, don't listen to him anymore. Listen to this person over here instead. He's the future kind of thing. Right. It's like naming a new pope before the old pope has died.
--:-- Jessica Mendoza: A White House spokesman said that Trump has made it clear that the Federal Reserve's monetary policy needs to complement the administration's pro-growth agenda.
--:-- Nick Timros: He added that the president will, quote, continue to nominate the most qualified individuals who can best serve the American people.
--:-- Jessica Mendoza: The candidates being considered are after the break. The Apprentice-like contest to replace Jerome Powell could be nearing its season finale, according to Nick's reporting.
--:-- Nick Timros: Two men are topping the list, or I guess I should say, two Kevins. Kevin Hassett and Kevin Warsh.
--:-- Jessica Mendoza: Let's start with Kevin Hassett. What can you tell me about him?
--:-- Nick Timros: Kevin Hassett is a sort of a journeyman economist in Republican consulting circles. He was on the McCain campaign in 2000, the Romney campaign last decade, and then he ended up working for Trump in In 2017, he became the chairman of the Council of Economic Advisors.
--:-- Jessica Mendoza: It's kind of the president's think tank inside the White House. Here's Hassett in 2018, after he had been confirmed to lead the Council of Economic Advisors.
--:-- Nick Timros: I keep a list of the people who voted for me and against me on my wall. The people who voted for me, I thank them. The people who voted against me, they'll tell you this, say, I understand that we disagree, but I hope that we can work together. And that's the attitude that I take to the CEA.
--:-- Jessica Mendoza: After Trump left the White House, Kevin Hassett went and worked with Jerry Kushner, the president's son-in-law, who started a new investment firm.
--:-- Nick Timros: So this is somebody who's developed a familiarity with the president's economic philosophy and his temperament. He knows Trump about as well as anybody who currently works for the president.
--:-- Jessica Mendoza: Hassett works in the White House and is one of Trump's closest economic advisors. But he hasn't always aligned with Trump when it comes to the Federal Reserve.
--:-- Nick Timros: So as an example, at the end of 2018, when Trump first became very upset with Powell, he was talking about how he wanted to fire Powell. And Hassett was among a small group of advisors who got together and told the president you just shouldn't do this It would be very bad It would be very disruptive
--:-- Jessica Mendoza: And without getting anybody's permission when Hassett was asked on the White House lawn if Jay Powell's job was safe, he said 100% yes. And the market went up a lot that day.
--:-- Nick Timros: The Dow went up 1,000 points. And Trump later called Hassett and said, good job, you made the market go up.
--:-- Jessica Mendoza: So Hassett in the first term was somebody who defended the Fed's independence, said this was a good thing. And even at the beginning of this year, Hassett was saying, well, we will respect the independence of the Fed.
--:-- Nick Timros: That changed in the last few weeks. He gave an interview on Maria Bartiromo's Fox business program, where he said the Fed was being completely political, Jay Powell was being completely political.
--:-- Jessica Mendoza: Jay Powell is the person who cut rates right ahead of the election to help Kabbalah Harris.
--:-- Nick Timros: Jay Powell is the person who voted to increase rates the first time Donald Trump was elected, even before he was inaugurated. And so it looks like he's been a person. I'm not saying that he is, but policy actions suggest that he's a person who's been basically doing whatever it is that Elizabeth Warren wants him to do.
--:-- Jessica Mendoza: So you see here this pattern of, you know, a shift in the view towards the Fed and a shift in the importance of Fed independence, where Kevin Hassett is no longer talking about the importance of an independent Fed.
--:-- Nick Timros: Powell flatly rejects the charge that the Fed behaves politically.
--:-- Jessica Mendoza: In June, Hassett met with Trump about the Fed job at least twice, according to people familiar with the matter. The discussions marked a shift for Hassett.
--:-- Nick Timros: In the past, he'd told allies that he wasn't interested in the job. But now he says he'd take the job if it was offered to him.
--:-- Jessica Mendoza: Hassett didn't respond to requests for comment.
--:-- Nick Timros: So let's talk about the other Kevin, Kevin Warsh. What can you tell me about him? What's his background?
--:-- Jessica Mendoza: The other Kevin, Kevin Warsh, was a Fed governor during the 2008 financial crisis. He was appointed by George W. Bush.
--:-- Nick Timros: And Kevin Warsh was a loyal lieutenant to Ben Bernanke, the Fed chair at the time. But he flipped at the end of 2010. He disagreed with some of the more novel interest rate policies that the Fed was doing.
--:-- Jessica Mendoza: He left the board after publicly distancing himself from what Ben Bernanke was doing.
--:-- Nick Timros: And he's really spent the last 15 years as a fairly high-profile critic of the Fed.
--:-- Jessica Mendoza: For example, here's Warsh back in 2022, calling the Fed's handling of inflation slow.
--:-- Nick Timros: If the Fed had acted as leisurely in the 2008 crisis and the 2020 crisis as they're acting now, where would the markets be then? Where would the economy be then? I must say I'm a little bit puzzled to understand why they've been so slow to recognize this inflation crisis and so slow to do anything about it.
--:-- Jessica Mendoza: In some ways, Warsh is sort of the more traditional or more establishment pick, having been a Fed governor.
--:-- Nick Timros: Is that enough to get the job? With Trump, being an establishment, anything isn't going to be enough to get the job.
--:-- Jessica Mendoza: You're going to have to demonstrate that you believe in the president's agenda.
--:-- Nick Timros: Kevin Warsh was a free trader 10 years ago. In 2018, he was writing in the Wall Street Journal editorial page about the dangers of Donald Trump's mercantilist rhetoric and the harm that could be caused to the economy from tariffs.
--:-- Jessica Mendoza: So Donald Trump would have reason to be skeptical of whether Kevin Warsh is truly on board with the MAGA economic philosophy.
--:-- Nick Timros: Warsh has since tried to soften those differences by speaking out about his support for Trump.
--:-- Jessica Mendoza: I've got some sympathy with the president's frustrations here, Larry. Economic growth in the U.S. is poised to boom, but it's being held down by bad economic policies coming from the central bank.
--:-- Nick Timros: The challenge Warsh has is that he does not have an office in the West Wing the way Kevin Hassett does.
--:-- Jessica Mendoza: He lacks direct access to Trump, so he has to make his case either by seeing Trump at one of his golf clubs or going on TV.
--:-- Nick Timros: Having that face time is going to be very important here if the president really wants to size someone up and have confidence that this person is going to do what they want them to do.
--:-- Jessica Mendoza: To close that gap, Warsh has discussed traveling to Washington this month to meet with Treasury Secretary Scott Bessent about the Fed position, according to people familiar with the matter.
--:-- Nick Timros: Warsh didn't respond to requests for comment.
--:-- Jessica Mendoza: Aside from Hassett and Warsh there is another candidate who maybe in the running for the job Scott Besant himself Scott Besant is certainly going to be a sounding board for the president throughout all of this Besant is in the unusual position here of advising the president on a job that the president might ask him to do.
--:-- Nick Timros: That's a very real possibility here that Scott Besant will have the right of first refusal on the Fed chair job.
--:-- Jessica Mendoza: What our sources have suggested, though, is that Donald Trump is thinking and vocalizing his desire for Scott Besant to be his Fed chair.
--:-- Nick Timros: At a cabinet meeting on Tuesday, he was talking about how much he dislikes Powell. And he had turned to Scott Besant and he said, I like you better.
--:-- Jessica Mendoza: So he clearly is rolling with this idea that maybe Besant should be his Fed chair.
--:-- Nick Timros: But, you know, it's a little bit like, well, I can't decide between two desserts. I want to order both of these desserts. Oh, I don't want you to leave the Treasury. You're such a good Treasury secretary. couldn't you just do both?
--:-- Jessica Mendoza: So, you know, one person I spoke to said, it's not even clear how serious they are about this idea of having Besant do both jobs.
--:-- Nick Timros: You couldn't do it. But that sort of speaks to where Trump's head is on some of these things.
--:-- Jessica Mendoza: Besant is already, he has a job, he's Treasury Secretary. Could he conceivably be both? Is that a thing? No, it's the feds, the law that creates the fed says you can't have another job when you're working at the fed.
--:-- Nick Timros: But, you know, if you put the central bank jointly under control with the Treasury Department, you'd be going back to a completely dependent central bank. It would ruin the idea that the central bank is independent.
--:-- Jessica Mendoza: Okay, so between the two Kevins and Scott, who is coming out on top as of this moment?
--:-- Nick Timros: It's a mugs game to try to predict how, you know, to handicap it. But right now, Kevin Hassett seems to be ascendant. He is there. He is at the White House. His stock is rising.
--:-- Jessica Mendoza: Kevin Warsh, his stock is fading a little bit. And then Scott Bessent is waiting in the wings and might be able to intercept this job if he wants to.
--:-- Nick Timros: Whoever it turns out to be, Trump is, as you said earlier, hoping to have greater influence on the Fed by replacing Jerome Powell.
--:-- Jessica Mendoza: But is it really that simple? Like take the top guy out, put in somebody you like better, and you're golden?
--:-- Nick Timros: No, the Fed chair is not a king. The Fed chair doesn't get to decide alone on monetary policy. Interest rates are set by a committee of 12 people, and the Fed chair has one vote.
--:-- Jessica Mendoza: So the way you influence interest rate policy, even if you're the Fed chair, is through listening to everybody else, through persuading them.
--:-- Nick Timros: And there's a tradition at the Fed of unanimous decisions. These are 11 to 1 votes, 10 to 2 maybe occasionally. Very rare that you see more than two people dissenting.
--:-- Jessica Mendoza: And so that power of persuasion and achieving a strong consensus has been an integral part of the Fed and is going to be a challenge for a new chair to do something that there's not strong justification for doing.
--:-- Nick Timros: So you're saying the board might still resist Trump's influence regardless of who is chair?
--:-- Jessica Mendoza: The committee isn't going to do something just because the chair comes in and says, do this.
--:-- Nick Timros: And the committee is certainly not going to be swayed by, well, we should do this because the president wants it.
--:-- Jessica Mendoza: You know, these are people who have looked back over history and seen times in the past where you had huge problems because the Fed was captured by the executive branch.
--:-- Nick Timros: And they care about their legacy and the stability of the economy, that they're not going to let that happen.
--:-- Jessica Mendoza: So after following all this action Nick, where is this all headed?
--:-- Nick Timros: This is going to be like any reality show, lots of plot twists, very fluid, very hard to predict down to the wire. Yeah, there will be maybe a series extension, it'll be heavy drama.
--:-- Jessica Mendoza: That's all for today, Thursday, July 10th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Brian Schwartz. Thanks for listening. See you tomorrow. Thank you.
