Risk of Fed Presidents Getting Nixed is 'Playing Out' Says Lael Brainard

Well, I think the Federal Reserve is in an incredibly difficult position here. But you have to remember, this is not about an individual governor. This is really an unprecedented attack on the independence of the Federal Reserve as an institution. There is nobody in the Federal Open Market Committee, the monetary policy setting committee. They can't be thinking, well, what does this mean for me? And so any member of the board presumably is going to worry that they, too, could be subject to this kind of political pressure. And that fundamentally undermines the institutional independence of the Fed, which means higher inflation, potentially less credibility, even higher long term interest rates, bad for the economy.

Well, I just think the implication, if any member of that board could come under this kind of political pressure from the White House. And, of course, we saw that kind of pressure on the chair earlier this year. I think that does really put a higher premium on whether they're going to be willing to speak their minds to Senate on key votes if necessary. I think it really does create unprecedented risks. The president in his letter talked about this mortgage allegation fraud in the mortgage world for Governor Cooke. What if she was charged or convicted? Well, I think what is important here is due process and undertaking a real investigation and having the facts on the table and the ability for her to defend herself legally. None of that has taken place here. The White House has pre-empted the process. And so that is why it's really unprecedented. It's very, very threatening to the very independence of the Federal Reserve. And it should cause concerns, I think, among investors and more broadly about that frontal fundamental underpinning of our strong economy and our strong financial markets, given this is just about one individual.

So the Federal Reserve as an institution is all about due process, and there have been individuals who have had investigations previously. There's a good process for doing that. That's not what's taking place here. This is really about trying to overturn the majority of the Board of governors long before any of these governors terms are up by threatening them with these kinds of investigations and firing without real due process and cause. And again, the Federal Reserve's independence really is at stake here. And that means that monetary policy will increasingly be overshadowed by concerns that there's political interference. Whether or not that is actually the case, if you think about it. Jay Powell, open the door for an interest rate cut in September very clearly. That's exactly what the president wants. So monetary policy is actually moving his way. And yet this is a very, very aggressive attack on the Federal Reserve when monetary policy is doing exactly what he's been calling for.

Well, I think that the chair was very careful in laying out that the balance of risks had shifted. He pointed specifically to the possibility that the labor market is weakening faster than the members of the FOMC had believed in their last meeting because of the revisions to three months worth of hiring data. And so he laid out a very, I think, strong case based on data and the facts why they were now potentially going to be more attentive to that labor market weakening while acknowledging that inflation is still likely to go up because of the very high tariffs that have been put in place.