Let's talk about the Fed Chair and I having the same sense of humor.... - Belle of the Ranch

[TexasTowelie]

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about the Fed Chair and I having the same sense of humor.

Back in early February, I put out a video detailing a scenario that I described as the most hilarious possibility in Federal Reserve history. Some quick background.

Trump has it out for Federal Reserve Chair Jerome Powell because Powell won't lower interest rates just to suit Trump's political whims. And since we see inflation creeping back up even with the higher rates, Powell has been 100% correct.

Trump's administration has started probes of Federal Reserve governors, including Powell. Just like Trump didn't understand how interest rates work, he also didn't seem to understand how the Federal Reserve actually works.

I don't want to reinvent the wheel. So, here's a quick clip from early last month that explains some little known things about the Fed.

(cut to archived footage)
So, let's lay out some facts that are important to understanding a potential chain of events that was always possible, but wasn't likely until recently. Trump wants interest rates lowered. Trump wants the Federal Reserve to lower those rates. Trump also wants an overhaul of the Fed in general, which would reduce its independence.

Jerome Powell's term as Chair of the Federal Reserve Board of Governors ends in May. Everybody knows that, but what many don't know is that his term as a Federal Reserve Governor doesn't end until 2028. Generally, exiting chairs leave, but they aren't required to.

Trump has nominated Kevin Warsh to become the new Fed Chair, but the Fed Chair has to be on the Board of Governors. Warsh is currently not, which means Trump may have to give Warsh the seat of Trump ally Stephen Miran to get Warsh where he wants him. Trump has pushed for legal actions against Fed governors Cook and Powell. Because of that, Democrats on the Senate Banking Committee have basically said they aren't moving on anything until those are resolved. Warsh would have to get through those committees. Gridlock.

Now for the twist and the piece of information Trump may not have known or maybe knew but didn't really process. Interest rates aren't actually controlled by the Federal Reserve Board of Governors. They're controlled by a different committee within the Fed called the Federal Open Market Committee. Guess who the current chair of the committee is? Jerome Powell.

Traditionally, the Chair of the Board of Governors is also the Chair of the FOMC, but that's not required. Trump's pressure campaign may have ended up putting Powell in a situation where he stays on as a governor after his term as Chair of the Board of Governors ends to protect the independence of the Fed, which he can do and he might end up still being the Chair of the FOMC, which is the committee that controls interest rates because of Trump's pressure campaign and resulting gridlock.

This isn't set in stone, but the likelihood of this outcome is high enough now that you should know about it because if this comes to pass, you're probably going to need to be able to explain to people how this absolutely hilarious outcome occurred. And it really boils down to two things. Trump trying to exert influence over an independent Fed and Trump apparently not fully understanding which committee actually controlled the interest rates while confusing tradition for regulation.

(return to current footage)
So that was from February 6th and the only major change to the dynamics is that Republican Senator Thom Tillis came out of nowhere with a Chair and is blocking Warsh from moving forward.

Now, let me tell you what Powell said on Wednesday. "I have no intention of leaving the board until the investigation is well and truly over with transparency and finality." But wait, there's more. He also said, "On the question of whether I will then continue to serve as a governor after my term ends and after the investigation is over, I have not made that decision yet. I will make that decision based on what I think is best for the institution and for the people we serve."

Best for the institution and for the people we serve. People had a little good-natured fun at my expense when I laid this scenario out a month and a half ago because it was definitely an unconventional possibility. But here we are. Let me just go ahead and tell you what Powell thinks is best for the institution and for the people, an independent central bank.

What you just heard was almost a promise from Powell to stay as long as he believes Trump is trying to undermine the independence of the Federal Reserve. Trump's going to be super mad when he realizes he's been angling to control the wrong committee at the Fed.

Anyway, it's just a thought. Y'all have a good day.