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- [00:03]
A
Hi, I'm Lisa Mateo, introducing you to the new Stock Movers report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify, or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.
- [01:03]
B
Bloomberg Audio Studios Podcasts Radio news.
- [01:19]
C
Hello, and welcome to another episode of the Ovlots podcast. I'm Tracy Alloway.
- [01:23]
D
And I'm Joe Weizendahl.
- [01:24]
C
Joe, another day, another emergency episode.
- [01:27]
D
I mean, we're back to emergency episodes, and this is obviously one of the big ones.
- [01:30]
C
Yeah. So we are recording this on August 26th, and we had news overnight that President Donald Trump intends to fire Lisa Cook from the Federal Reserve Board. Obviously, this feeds right into the debate over central bank independence and what the President actually has a right to do when it comes to hiring and firing. And the market reaction this morning, gold up a bit, the dollar down. But what's really interesting is we have yields at the long end of the treasury market picking up, which would suggest there's more of a risk premium being built into that market.
- [02:08]
D
No, totally. The concerns over Fed independence sort of cast a whole shadow of the recent Jackson Hole event. And of course, okay, so we're recording this August 26th, this morning, an episode with Adam Posen, which was sort of about the surreal experience there where everybody knew that the threats to central bank independence were the number one story in monetary policy, and yet no one was really talking about it. Maybe people were trying to lay low, trying to act business as usual. And then we get this. And so what was something that maybe people hope to imagine away or sort of not, you know, look at the other direction is now right here.
- [02:45]
C
Well, we also had Trump tweeting that he wanted to fire Lisa Cook while Powell was giving his speech, which definitely underscores the tone of Jackson Hole recently. Okay, so there's clearly a lot to talk about, including whether or not Trump can actually do this from a legal perspective. And I am glad to say we have the perfect guest, someone we have spoken to before on this exact topic of central bank independence. We're going to be speaking with Lev Menand, professor at Columbia Law School and also the author of the Fed Unbound. Lev, thanks so much for coming on the show again.
- [03:18]
E
Thanks for having me back.
- [03:20]
C
So I'm going to start with a very simple question. Is there any precedent in, in history for a president firing someone from the Federal Reserve Board in this way?
- [03:31]
E
No. There have been no firings of members of the Fed Board by the President since the Fed Board was first created by Congress in 1913. And there haven't been any attempts by presidents to remove any officers of the United States for cause in over a century. And so we're in unchartered waters here in a number of different respects.
- [03:55]
D
We're going to get into the ostensible reasons for the firing, obviously. But as lawyers, what does for cause mean?
- [04:05]
E
So, for cause, one of the legal questions here is what constitutes cause under the statute and in federal law, in independent agency law, usually Congress specifies the causes, and there are three common ones, inefficiency, neglect of duty, and malfeasance in office. These are the classic causes. The Federal Reserve act is unusual for not specifying specific causes, but saying simply for cause. So one issue here is is it just the standard causes or do other things count? And that's really important because the standard causes all have to do with your conduct in carrying out your job, malfeasance in office, as opposed to malfeasance out of office. There was an intent by Congress not to include private misconduct as a ground for presidential removal from office. And so one question here is whether private misconduct even counts. I think something that's very clear, we should just say up front, allegations of private misconduct definitely don't count. That does not come within the statute. And that's one of the reasons this is.
- [05:08]
D
Sorry, why?
- [05:10]
E
Because of all the due process concerns that are associated. Right. An allegation is insufficient for a removal for cause because for cause requires a determination that misconduct took place. An allegation isn't sufficient for determination. An allegation is totally sufficient to fire the Secretary of the treasury because that person serves at the pleasure of the President. And the President can say, I fired the Secretary because the Secretary. There are allegations that the Secretary engaged in misconduct. That's totally sufficient. But Lisa Cook is not an official that serves at the pleasure of the President. Lisa Cook is closer to being a federal Judge, an official who has a tenure in office, a. A vested legal right to serve in their position, and to take that away, the president has to follow a process and have a ground and make a conclusion. And none of that has happened here, which is another reason that this is an illegal firing.
- [06:00]
C
So just before we go any further, give us a recap of the accusations against Lisa Cook, because, as you point out, they feed into the debate over whether this could count as malfeasance, particularly in office.
- [06:13]
E
Yeah, okay, So I will do that. I just think we should note at the sort of. At the top that there's a way in which while this is about Lisa Cook, it's also not about Lisa Cook at all. This is about Jay Powell. This is about the rest of the board. This is about the president's determination to subordinate one of the most powerful parts of the government as part of a larger campaign to control as much of the government as possible. And the move against Cook is a preview of coming events for other board members, if, in fact, the firing is able to take effect. Okay, so what is the specific case against Cook? It has to do with two mortgages that she took out before she became a governor of the Federal Reserve. And so it appears as though the administration has been digging around in mortgage records, and they found. I don't know whether they were looking at Lisa Cook in particular or government officials. They found that Lisa Cook had two mortgage applications, both of which claimed that she intended to make the property that was collateral for the loan her primary residence. And so the allegation is that this is mortgage fraud. Of course, fraud requires an intent. And so on its face, just the two documents is not sufficient to convict somebody of a crime, nor can you be sort of convicted of a crime. On the Twitter sphere, the ordinary way in which it would get worked out whether there was fraud here is there would be a private government investigation by prosecutors. They could get an indictment, et cetera. None of that has happened. Right. This is guilty until proven innocent. And it doesn't seem to even be the goal of the administration to run a property proceeding to determine whether this private misconduct took place. The point is to point to this private misconduct and say, now I can fire you from the Federal Reserve. And that's where there's just a big disconnect, because allegations of private misconduct, there's just no precedent that supports a removal for cause from a government position on that basis. And the President has pointed to none, and the White House has pointed to none. Mostly what they're pointing to. And what this is going to ultimately be a case about is their inherent constitutional authority as president, which is what the court has allowed the President to invoke in a number of other instances to ignore statutes, to ignore law, and to trample on people's rights. And so that's gonna be. That's part of why also this is a big case, because this is not just a big case for the Federal Reserve. It's also just a big case for the rule of law in our system and the extent to which we are a government of laws and not of people.
- [08:57]
D
These are extremely important things that we have to get across. What happens now in terms of like the questions? Because she's gonna fight it. I believe her lawyers put out a statement last night. What's your understanding of how things could play out in terms of like even her going to her office at the building and being included in meetings? Cuz these processes take time. If it's gonna go the Supreme Court.
- [09:17]
E
Yeah, this is a very messy moment. And so the initial clarification will come from the courts because presumably Lisa Cook's lawyers will seek a preliminary injunction reinstating her from Federal District Court in the same way that Gwen Wilcox, the NLRB did, that Bedoya at the FTC did when they were removed earlier this year. Right. So we know how that process kind of works. But there's this period of time between when the President tries to fire someone who is statutorily protected from being fired by the President, and the federal courts make a decision about whether that person's gonna get to continue to work in their job while the litigation is going on where? Who knows? So right now to your question, the Federal Reserve Board and Jay Powell as the active executive officer of the board, is in a difficult position where they have to decide, does she still have her office? And they're under an independent obligation to follow the law. Right. They don't get to just say the President told me so. They swore to uphold the law. So they have to make their own determination about whether she was in fact fired by a social media post. Right. That didn't follow any of the proper process. And it's an invalid firing on its face. And under existing law, it doesn't have any legal effect. Maybe Supreme Court's gonna change the law like they've done before, but I think Powell here has to let her in the building. And that's going to create a separate showdown between the board, its lawyers, Jay Powell as active executive officer of the board, and the President.
- [11:03]
C
That's interesting. So there's two parallel legal arguments going on, one at the Fed and one in the court system. Just going back to the court system for a second. We have, of course, had firings at other agencies this year. And as part of those, the Supreme Court basically carved out an exception for the Fed, saying that I think it's uniquely structured and it's different because it's different. It's different because it's different because we said so, yeah, there's a carve out. Would that come into play here? Or could they just cancel the carve.
- [11:34]
E
Out so the carve out isn't direct to this issue? Okay, so there are these other independent agencies just like the Fed, Federal Trade Commission, sec, National Labor Relations Board, and they all say that people have tenure in office for a term of years and the President can only remove for cause. And we were talking about how usually those causes are specified. What the President did earlier this year is say, I don't need to follow that statute, I don't have any cause to remove you. I'm just going to remove you as if you serve at pleasure, because under the Constitution, I can do that. And that case went out to the Supreme Court, and that's what you're referring to. And that case is called Wilcox. And in May, the court said, yeah, you're probably gonna win on that President, because we're into this theory of your inherent powers that's pretty much unmoored from the American legal tradition. But we're gonna probably endorse it when we get this case on the merits next year. And so in the meantime, all these people are out of jobs. And then they said out of nowhere, because the case doesn't involve the Federal Reserve at all. They say, by the way, just in case anybody's like watching, who's wondering, can I fire people at the Federal Reserve? We think the Federal Reserve probably is a different situation, but that's with respect to whether the cause language is binding on the President. And so the President read that this is actually all downstream of the Wilcox order from the court because the White House lawyer said, okay, now we're going to go out and try to find causes that we can sort of manufacture, cook up and push the envelope on this legal provision. And so the court didn't protect the Federal Reserve from this in Wilcox. It in some sense invited the White House to try this. And so now this case will go back to the Supreme Court, presumably, and the Supreme Court will have to say, does this for cause thing, is it for real or is it just a paper requirement, Is it just pro forma cause? The President is treating that like it's nothing more than putting out a press release alongside the removal, which is definitely not how Congress understood it when they wrote the Federal Reserve act, or how this was litigated in the past when this was a bigger issue in American government.
- [13:48]
D
This is really important clarification that when Trump fired some of those other people, they were trying to establish the notion that these sort of so called, like independent agencies were actually just constitutionally illegitimate.
- [13:59]
E
Right?
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D
There was a specific point there.
- [14:01]
E
Exactly.
- [14:02]
D
And so there was no pretext for invoking the cause because that wasn't the goal. The goal was to establish their illegitimacy, not to necessarily change the partisan makeup per se. Though maybe that was the case in the case of the Fed. I mean, you say that this firing was downstream from the Wilcox decision, but was it? I mean, the for causability has never, like the idea that you could fire for cause has always been there. Right. Like they didn't need the carve out from Wilcox to fire someone for cause. Even if, even if we dispute that this actually rises to that level.
- [14:39]
E
Yeah, I think this is a great question and it's come up a few times in conversations that I've had. I think the thing to understand about the Wilcox order is how radical it was for the Supreme Court to say that this bedrock precedent on which the US Government is designed is probably invalid and therefore the President can fire all these people don't get to work while they litigate their cases. They're out of their jobs. And so the court in Wilcox embraced such a broad conception of the presidency in such a sort of unorthodox, unmoored fashion, that the main signal from that isn't that the Fed is protected, but it's that this court is going to bend over backwards for very broad conception of the President's power. And so when you read that as a lawyer for the President, what you think is, okay, they don't want to be tagged with concluding that central bank independence is, on its face, legally invalid in the United States, but they also are going to let us do what we want. And so the thing to do is to now push on this for cause and act like it's not actually a very rigorous bar and we'll get what we want. Because it was so surprising that they got what they want with respect to the FLTC and the NLRB. And so there's this sense that people had after Wilcox, the court is protecting the Fed. But the real message in Wilcox that overrode that sense of protection is the court's gonna come up with reasons when push comes to shove, not to pen in the.
- [16:32]
C
Foreign.
- [16:43]
A
Hi, I'm Lisa Mateo introducing you to the new Stock Movers Report from Bloomberg. These are short audio reports, five minutes or less, delivered right to your podcast feed. Throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for you to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify, or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.
- [17:41]
C
Why do you think the Trump administration wants to exert control over the Federal Reserve? Because, you know, we just had a speech from Jerome Powell at Jackson Hole where he opened the door to interest rate cuts in September. So it would seem things are sort of heading in the direction that Trump wants. Even though I will point out there's a tension there because he says the economy is great, but also he wants rate cuts. Why is this important to him?
- [18:07]
E
So the Federal Reserve is the most powerful agency in the federal government, and alongside the Supreme Court and the White House, Those are the three most powerful government bodies in the United States. In 2025, the Fed's power has expanded dramatically since the 2008 financial crisis, and it has turned its balance sheet into an active policy tool. And that means that it is a very shiny prize for a president that does not want to have to go to Congress for appropriations to carry out various policies. Here you have an infinitely extensible balance sheet. Now, it's meant to be used to ensure stable monetary expansion over time. But what we've seen is it can be put to other uses. I think some of those are legally questionable, but you can imagine a president who doesn't believe in following laws, believes in inherent executive authority with control over an infinitely extensible central bank balance sheet can do all sorts of different stuff. So this is a very shiny prize even beyond interest rate policy. I think I wouldn't underemphasize the interest rate policy component. Yes, Trump wants lower rates, and there's a indication that rates will be lowered at the next meeting, but not by the amount Trump is demanding. Trump wants to run a boom economy, overheated economy. And in order to do that, he wants to create very easy credit conditions and loose monetary policy and monetary expansion. And the Fed is not going to do that on its own. He's going to have to take over the institution if he wants them to do that. The whole institution is designed not to engage in such a boom and bust type of macroeconomic management. And that's actively what he wants. And I think what we will get. And the markets are only very slowly waking up to that.
- [20:12]
D
Yeah, it does seem. Well, I mean, who knows? I mean, you look at some of the way asset prices are flying. Maybe the market is clued into.
- [20:20]
E
Maybe the market is clued in. Yes, because the way this goes is we get asset bubble, right? We get a lot of leverage in the financial system because we deregulate bank balance sheets and we lower short term interest rates. That's going to lead to lots of credit expansion and that's going to be an inflationary boom. The reason why we don't run the economy like that normally is it ends in tears. There's gonna be a bust later. But as I believe it was Chuck Prince once said, when the music is playing, keep dancing.
- [20:50]
C
Maybe the bust will be four years later. Right. And Trump won't necessarily care if he's out of the presidency.
- [20:56]
E
It could certainly go for years. We've seen irrationally exuberant markets led by actual underlying structural credit expansion. Fewer bubbles for a long period of.
- [21:08]
D
Time, by the way. I think if I were like a banker or a lender or a professional trader, I wouldn't know. I would get out right at the top. I just have that feeling that I could do it. It's like, let's keep it going.
- [21:16]
C
And why doesn't everyone do that?
- [21:19]
D
I know it's a bubble or boom, but I just have this feeling that I would be able to time the top.
- [21:23]
E
It's the Odd Lots podcast. That's how you know, that's where you get your special insight.
- [21:27]
D
Could the question of whether Powell and like, again, who knows what's gonna happen today, let Cook back into the building, could that be a pretext for an attack on Powell himself?
- [21:40]
E
Absolutely. I mean, I think that this president or the White House more generally, has floated any number of possible sort of constructed cases to remove officials. And so they obviously floated the renovations. But a failure to follow a presidential order, everything the President says is not law. This is a common misconception. But this president thinks it is law. And so it would be easy for the president to say this is law.
- [22:08]
D
But, you know, I'm sure these are the types of things that people debate forever in law school. And every time we talk to lawyers, I'm reminded it's like all law is just what people agree is law at any given moment. Right. Including the most. Anything can be re. Anything can be reinterpreted, anything can be contrived, anything can be turned into a loophole. Like in the end, the only thing buttressing written laws is some sort of stomach to enforce them, right?
- [22:36]
E
Yes. Law is a social coordinating mechanism. And in order for it to work, we have to have the shared understanding and follow it. And that's why things like this have such high stakes. Because when a government actor flagrantly violates what the prior understanding is, it sort of tears at the fabric of law as a consensus building mechanism.
- [22:57]
D
By the way, 11:26 headline just flashing through the terminal. Lawyer for fence cook says she will file lawsuit challenging firing. So that's confirmed.
- [23:06]
C
Clearly. Still a live issue. Just to recap, I just want someone to lay out this argument very clearly. And you tend to do that, Lev. You tend to do it very well. So why is central bank independence important?
- [23:22]
E
This is a big question that could probably support an entire episode. And I think you guys have. We have explored this at other times and you've explored it with some other guests. I saw your episode with Carolla Binder. Central bank independence is important for the reasons that the economists put forward, which have to do with credibility and long term decision making being best furthered by special purpose officials. Right. You don't want to overload people with competing priorities. You're going to get less quality policy. And so that's why you have a 14 year term of office here. Because we want Fed officials making long term decisions. We don't want short term decisions about changes in the money supply. And so all of that's true. There's a timing consistency problem. This is a long term policymaking domain. But I actually think right now it's important to emphasize something that's not actually a big part or really any part of the economics literature. And that has to do with the separation of powers and democracy. And you don't want to concentrate too much power in a government, in any one person. And that's actually a foundational idea in the American constitutional system. Arguably, the founders went too far in separating powers. They made it very difficult for the government to do stuff. And what's happened here is we've concentrated power in the President in a way that would have all of the framers of the Constitution rolling in their graves. And to allow the executive to control the money supply, that's literally an issue that led to the glorious revolution in 1688. It's one of the key concerns of the founders is to separate control of the money supply from the executive. And so central bank independence is also about good government and preventing tyranny. And Alexander Hamilton said this in his report on a national bank. And so it's not just about having optimal long term monetary policy. It's also about preventing one person from controlling way too much.
- [25:28]
D
You know, for maybe the last 15 years or maybe from 2010 through Covid, there was like a left critique of central bank independence. But it was very, you know, it seemed to be very focused on this idea that the central bank, by having this like, you know, a, was just not democratically accountable, that it was accountable to the interests of money holders to not lose the value of their money, that that was constraining the rebound of labor, et cetera. Are those critiques suddenly vanishing? Because it feels more important to make the argument that you're making.
- [26:04]
E
So I always felt those critiques were part right and part wrong. Okay. And the part that was right is that the central bank in the United States was structured in a way that made it too responsive to financial interests and not responsive enough to the Congress and to the American people's interest. And that led to an excessively tight monetary policy over an extended period of time. But the solution to that is not to have a Federal Reserve under the control of the White House. That is not a solution to an insufficiently democratic monetary policy. The solution is to change the structure of the Federal Reserve System and who influences those officials. And that means increasing the influence of Congress. It might mean increasing opportunities for judicial review. There's almost no judicial review of the Fed. It might mean removing the bankers from the boards of the regional Federal Reserve banks. It might mean changing the Fed's responsibilities and the statutory scheme that it's executing. There are all sorts of ways to create an administrative agency that is more responsive to democratic interests besides putting it under the President and actually putting an agency under the president. We have actually a bunch of experience with what that looks like. And that makes most policy, as a general matter, more favorable to wealthy business interests. And so there's definitely a valid critique that central bank independence as we knew it, as central banks were constructed, led to a bias in central bank policy towards certain interests. But the solution to that problem isn't let's bring in the President. That will make the central bank policy more appeal feeling and appropriate.
- [27:50]
C
Lev Menand, thank you so much for coming back on Odd Lots for yet another central bank independence episode. Appreciate it.
- [27:57]
E
Thank you for having me.
- [28:12]
C
Joe. Always good to get Levin. I feel like he explained explains the issue very, very clearly. I guess we'll see what happens both in the court system and also within the Fed itself. Because I thought it was really interesting, this idea of like two parallel legal tracks here where the Fed is obligated to also follow the law and so they need to figure out for themselves whether or not the firing is legal.
- [28:35]
D
Absolutely. I mean this is very serious, like sort of high stakes immediate stuff that there are questions that are not easily resolved by the time they get to the Supreme Court. I also just found his argument very like persuasive that like an allegation is not cause. Right? Like setting aside like you know, what constitutes cause and maybe that is ambiguous in this particular case, et cetera. All we have is an allegation, right?
- [29:01]
C
There's supposed to be due process to figure out whether or not the allegation is in fact true. Also an allegation that didn't actually happen while Lisa Cook was in office, which also plays into that malfeasance argument. I'm guessing we'll have plenty more to talk about on this topic in the future. So shall we leave it there for now?
- [29:22]
D
Let's leave it there.
- [29:23]
C
This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
- [29:28]
D
And I'm Joe Wiesenthal. You can follow me at the Stalwart. Follow our guest Levmonand. He's at Levmanand. Follow our producers Carmen Rodriguez Hermanarmond dashiell Bennett at Dashbot Kalebrooksale Brooks. For more Odd Lots content go to bloomberg.com oddlots we have a daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord GG oddlots.
- [29:51]
C
And if you enjoy Odd Lots, if you like it when we do these emergency episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.
- [30:42]
B
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A
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