Undermining Fed Could Create ‘Chaos' Says Kitty Richards (Video)

Bloomberg

a day ago

00:00
I think some of these moves are really unprecedented. But one thing that we do know is that a big part of how the Fed has its power to manage the macro economy is through trust in the Fed, from investors and from other market participants. And undermining that trust, I think, might have the opposite effect that Donald Trump is looking for. It can really create chaos, worries about investing. And, you know, if the Fed starts to be seen as an organization that is going to do the Trump administration's bidding, we could see inflation expectations rise and other things that are going to cause trouble for the economy. Well, part of this conversation, as we were just outlining with Michael McKee, is that we've seen these allegations really be led by Bill Pulte, the head of the Federal Housing Finance Agency. He's come out with some pretty staunch criticism, including when it comes to the housing market and the Federal Reserve. I actually had the chance to speak with him on balance of power last month and asked him about his views on the housing market and here's what he had to say. I would say, however, that Jerome Powell is causing great devastation, in my view, to the housing market. Homebuilders in this country are not wanting to build inventory because in many ways they don't feel like they can move it after this inflation that's occurred for years now for the last four years. And so we've got a lot of work to do in the homebuilding market, in the housing market after these last four years. And Jerome Powell, unfortunately, has made himself front and center as the obstacle in front of it. So I'd love to get your response to this argument from the administration, because I know that you've argued that the Fed should have normalized interest rates last year, but how are we also seeing perhaps the administration's policies fold into this? What's your response to Bob Holt claim there? It's interesting that he focused on the effect of inflation over the last several years and asset price inflation rather than, you know, as you said, I've had concerns for some time about the direct effects of high interest rates on the housing supply, the ability to build more housing, and also on people's ability to afford housing. Right. Interest rates are more than just a macroeconomic tool. They're what you pay on your mortgage. But I do think that they're really not paying attention to some of the direct effects of things like the tariff policies on the cost of building homes, immigration policy and the cost of building homes. Those are big supply constraints when we're seeing lumber prices go up and other inputs into homebuilding. That's something that the president could address directly and something that is really creating problems in the housing market. Well, I do want to dig on a little deeper when it does come to tariffs, because yesterday we saw President Trump really stunned the logistics industry when it comes to his steel and aluminum tariffs. They were expanded to over 400 consumer items, really without notice at that point. What does that tell us about this administration's use of tariffs when we are seeing them expanded? And you look at these metal tariffs, they were originally enacted under their still enacted on Section 232 on the basis of national security concerns. I think it's pretty difficult to come up with a reason that there is a national security concern that would cause this kind of chaotic management of tariffs. Tariffs can be a tool for economic management and for national security interests. But what we're seeing instead is this sort of slapdash, unpredictable behavior that makes it really difficult for businesses to plan and difficult for consumers to plan and can really drive inflation, both as businesses pass on higher costs, but also as competition is reduced and businesses take advantage of that to increase their prices at the expense of both their workers and the broader economy. There's I do want to emphasize that a lot of these tariffs are justified on the grounds that we're going to bring jobs back to America. These are going to be good jobs. There is no law of nature that says that increasing the price of imports redounds to the benefit of workers. You need strong unions, you need pro-labor policies. And that is the opposite of what we've seen from the Trump administration. So I think what we're going to see from this is more chaos, more higher prices and a lot of investors scratching their heads. Kitty, I wanted to dig further into the consequences you just alluded to. What have we seen so far in terms of those sorts of price increases, you know, on the shelves of the stores and, you know, at car dealerships and elsewhere? And what more is to come? How much of business has been able to absorb and hold back from consumers and how long can they keep that up? You know, it's been a real mix. We as you mentioned earlier, we've already started to see consumer prices across the board creeping up. And last week, we got a pretty big jump. In the producer price index, but we have seen some companies already passing along costs for imported goods or goods that rely heavily on steel and other inputs that are highly tariffs at this point, sometimes in advance of when they are actually paying them. And to the extent that those costs then don't materialize, we've seen folks just pocketing the difference. But I do think that the worst is yet to come on prices being passed through, partly because these tariffs really just went into effect. Outside of the tariffs on China and steel. Most of the liberation day tariffs were pulled back very quickly. We were just talking about the domestic impact. What is the global consequence in terms of this effort to rewrite the rules of trade and global economics? I think that that is largely yet to be seen. An unfortunate consequence. You know, again, tariffs can be a tool, but they have not been a tool of diplomacy under the Trump administration. Instead, it has been this bizarre let's make a deal round after round. And we are starting to see that that is empowering others on the global stage, like China, to step in when the U.S. is no longer an honest partner at the table. Of course, we're getting closer here to the latest round of the FOMC, minutes being released at 2 p.m. Eastern. We'll be breaking them here on Bloomberg. And this was a meeting that we're going to get insight from where we saw two dissents and we're going to see whether or not those views were far from the rest of the committee or maybe some others are leaning more dovish. What are you watching for as we are now just minutes away from getting some more insight from that meeting? I'm watching for those same questions. How many of the other members of the committee were more interested in seeing rate cuts? It's also it's a difficult position for the committee, both because there's so much uncertainty. But also, as you pointed out earlier, we've seen a lot of new data, including big jobs, number revisions since the committee met. So even though it was only three weeks ago, we now have more information than they had at the time about the true state of the labor market in May and June. And so I think that the committee is in a bit of a tough spot. So where do you see the Fed acting when it comes in September? We've seen some bets of perhaps enthusiastic ones on Wall Street of perhaps even more than a quarter point cut in September and even more to come. Are those misplaced? I, I am not going to be able to predict what the Fed is going to do. I do worry a little bit that we've gotten into a dynamic where Wall Street is constantly betting on a rate cut. The jobs numbers would point in the direction of some softening, but also we have inflation that is persistently above the Fed's target. The Fed has reaffirmed that they are not changing the inflation target this week in their framework. And, you know, when we're seeing print at 2.7%, I think there's some caution warranted.