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Well 2026 is not only an
important year for the history of our country, but it will also
be a very important year when
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you think about the Federal
Reserve. Chair Jerome Powell, will see his term end in May,
and the new chair, to be
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appointed by President Trump,
we'll probably find out sometime in January. The biggest question
being asked right now, though,
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is whoever that person ends up
being, will that person continue to have the same level of
independence that other Fed
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chairs have had? We asked that
question and more of Peter Conti- Brown, Associate Professor of
Financial Regulation here at the
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Wharton School, and also, very
much a Fed historian. Peter, great to talk to you again. How
are you, sir?
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I'm doing very well. Glad to be here
with you, Dan. Okay, so I guess I'll start
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right there. Is the independence
question one that really draws your attention as much, whoever
the candidate will be?
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Oh, unquestionably. That's
always the dominant question anytime there's a change in
power at the Federal Reserve.
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But it's never been more
important than it is today. And that's because we've never had a
president like President Trump,
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who has made the independence of
the Fed so central a question. When you look at the candidates—
and I guess maybe even more so,
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as you alluded to being beholden
to the president, from a historical perspective, has that
happened before? Have we seen
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the White House, you know, try
to influence the Fed Chair in terms of the decisions that are
made by that entity?
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Oh, unquestionably. That's
not unique to Donald Trump. The interest from the Oval Office,
in what the Fed does is
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unrelenting. We've had a couple
of periods where just the nature of the macro economy and the
nature of the political
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preferences of the president
have overlapped. So I'm thinking about during the presidency of
Barack Obama. And in that time,
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you didn't see a lot from
President Obama, a lot of concern about the Fed. That's
because what the Fed was doing
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is what the president would want
the Fed to do anyway. But otherwise,
from presidents as diverse as
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Franklin Roosevelt to Lyndon
Johnson to Ronald Reagan, George H. W. Bush, Bill Clinton, all of
them have been keenly interested
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in the Fed and trying to shape
what the Fed does. What we have that is different this time is a
president willing to go to war
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against the Fed, using law,
politics, publicity and all kinds of tools to try to
delegitimize the Federal
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Reserve. That's why this
appointment, more than any other, matters so much. One of the things I've heard
talked about is that whoever
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this person ends up being, that
he will still be just one vote on the FOMC, and there will be,
obviously, many others. But even
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just the one vote, how much
influence does that person have on the FOMC when they're making
the potential rate cut decisions?
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You know, the Federal Reserve,
legally, is structured a lot like the Supreme Court, where the
Chief Justice is just one vote
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among nine, and the Fed Chair is
just one vote among seven or 12, depending on the committee. But
it's— in its long history, it
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doesn't act that way. So the
chair has much more influence over shaping the agenda, for
example. But also, view— the chair
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has always viewed his or her
role as shaping a consensus, so that we don't have a norm where
the policy messaging coming out
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of the Fed is incoherent to the
rest of us. The new Fed Chair will almost certainly not be as
good at consensus building as
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Jerome Powell. And that's
because Jay Powell, he's the Michael Jordan of Federal
Reserve consensus building. This
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is his— been his primary target.
He has been very good at it. He knows how to use the various
levers of power available to him
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to forge that consensus. And
even with the odd dissent, or even split dissent, he has
succeeded in forging a consensus
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during times of real uncertainty.
His successor won't be as good at that.
- Right.
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And I guess when you look at the
most recent votes that we've seen come out, and the
information in the minutes of
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the FOMC meetings up, until this
last meeting, it pretty much has been a consensus. I think this
past meeting was the first time
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we had three dissents in quite a
long period of time, correct? Yeah, the meeting before the
last one was the one that had
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this split. The— you're totally—
you're absolutely right about that. The— you know, we've had
those three-way votes in the
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past a number of times. About a
dozen times in the Fed's history, but not in a long time.
And what is more remarkable to
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me is not that we had the split
votes, but we didn't have more of them. That we didn't have
larger camps. Because we do have
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ideological disarray at the Fed.
And the fact that Jay Powell has been able to forge a consensus
as tightly as he has despite
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those— those couple of
dissents is really impressive. So I'm not going to hold the
next Fed Chair to the Jay Powell
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standard. But I am going to hold
the next Fed Chair to the Fed standard. And the Fed standard
is simply, is monetary policy
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being made to appease the
president? And if it is, then that Fed Chair is a failure. If
it is not, no matter what
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direction it might be, even if
they're going in a direction that I think is
macroeconomically incorrect,
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that's not necessarily a
failure. That's just a difference. And certainly the role of Jay
Powell has been challenged—
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challenging, I should say, over
his period of time, for various factors. The White House being
one. But most recently, the
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shutdown of the government,
which made the flow of data to make these decisions a lot more
challenging than maybe it had
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been in months or years past. Unquestionably. I look back at
the Powell era, and I see just
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an unrelenting series of crises
and challenges. And I give him high marks in monetary policy
and political handling. I'm a
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little bit more ambivalent about
Jay Powell's role as a regulator. But he's got a
lot to look back on for his
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legacy and be pleased. I
mean, we— it's crazy to think that, you know, six years ago,
you and I were probably in this—
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in person, having a conversation
about the Fed when people were starting to make squeaks about
this little coronavirus that
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might be coming out of China
through Italy. And Jay Powell handled the COVID-19 crisis
masterfully in all the right
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ways, and that was just one part
of his legacy. So he's got a lot to be proud of.
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How important then,
in that balance of what a Fed chair must do is that regulatory
side?
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Increasingly important. It's
always been important. The Fed has always been a regulator.
Indeed, in some sense, that was
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its first role in
Washington, DC. And what we're having right now is a very wide
open debate about regulation and
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supervision, not only about what
it should be for, how we should regulate the banks, but kind of
a meta-level question that I
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think is even more important,
which is, how responsive should regulation supervision be to
elections? And there's a big
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split there. Jay Powell takes a
view that it should be less responsive to elections. There
should be more stability. We
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should have the same kind of
supervisory and regulatory independence that we have for
monetary policy. I disagree with
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that. I think that regulation and
supervision are necessarily much more politically inflected with
trade offs that split the
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electorate, and the best way to
resolve those doubts is through an election. Is there— of the candidates that
we have heard their names, is
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there one that really stands out
to you as one that you would be most intrigued to see in that
role, because of their
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background, because of their
history, to be able to really manage this role and bring the
best forward, so that the Fed,
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banking, the economy can continue
to try and move forward? You know, as long as I've been
watching the Fed, which started
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really in the 2000s, right before
the crisis, I've been excited by every Fed Chair announcement. I
think that these appointments
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from Bernanke to Yellen to
Powell, and the reappointments of these, have been— have been
really terrific. Here, I have
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less enthusiasm. I think that
the three leading candidates have real strengths, each one.
Some different— one different
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from the other. But also, they
bring with them real weaknesses. And so I wouldn't, I would say,
you know, in the old adage,
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rather than three cheers for the
next Fed Chair, I'm ready to give one cheer. Or two cheers.
But there's a lot to see about
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what— what they might do. And
just for our listeners, the three leading candidates are
Kevin Warsh, Kevin Hassett and
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Chris Waller. Very different
people, very different central bankers. Each one gives me a
little bit of pause.
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As for Chair Powell, there's
talk about whether or not he will stay on in a governor's
role after he gets done
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leading the Fed. Is that a
possibility, or is a break more of a likelihood for him to kind
of move off from the Fed for a
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period of time? History suggests that he'll
leave when he— when his term as chair is over. But
there's a historical example Jay
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Powell is keenly aware of, and
that's Marriner Eccles. When he was passed over for Fed Chair
reappointment in 1948, he decided
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to stay on through 1951. And
during that time, he fought a very major, very public battle
to protect the Fed's
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independence from the Truman
Administration. And as soon as he achieved that result, he
resigned. And so I think Jay
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Powell's decision to stay or
leave is not foregone. I think it'll be a big question of who
President Trump nominates. So
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for example, if he nominates
somebody who's not on that list of three that I just named, but
instead is Trump acolyte with no
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relevant experience, then I
would expect Powell's decision to change. I'll finish with this. How do
you view, then, this entire
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process, when you think about
the history of the Federal Reserve and the role that it
plays in our— in our
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economy and our banking
regulation? You know, this has been— 2025
was a year of reevaluation. So
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many of our institutional
principles. I think the one that has stood best is the idea that
monetary policy, whatever it is
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to be, should not be dictated by
the sitting president, depending on whether he had waffles or
french toast for breakfast that morning.
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And that seems to be what President
Trump would like to achieve. He wants to direct monetary policy.
He's backed up that sentiment
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just a little in December. But
that seems to be his ambition. And my hope for 2026 is that
that ambition is not realized.
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There is so much that we should
do to reform the Fed, to reevaluate its— some of its
policies, its premises. But not
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that one. Independent central
banking is a bulwark for the good society, and we should try
to protect it.
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Peter, always great to catch up.
Thanks very much. What a pleasure. Thanks, Dan.
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You got it. Peter Conti-Brown,
Associate Professor of Financial Regulation
here at the Wharton School.