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Well, Wall Street has had a rocky road since the announcement of tariffs by the Trump administration. And while we are
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off the levels that we saw earlier this year, we also haven't seen a larger collapse either. So, what should we
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expect moving forward? Pleasure to be joined right now by it Goldstein who is a professor of finance here at the
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Wharton School. It great to talk as always. Thank you, sir. Great talking to you. You know, it's interesting. You
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know, we've talked so much about uncertainty and how the markets hate uncertainty. Well, certainly this has
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given it uh maybe one of the the biggest shocks of uncertainty we've seen in
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quite a while. Maybe going back Julie the early days of the pandemic. Yes, this is absolutely true.
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I think the story of uh the last few months or I would say the the first 100 days of the administration is a story
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about uncertainty. Uh because it has been a rocky ride. you know tariffs are introduced and then they're paused and
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then they are reintroduced and then there is discussion about Fed independence and there is the
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possibility that is being floated about replacing the chairman of of the Fed uh and all these things are just creating a
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lot of uncertainty a lot of anxiety and I think that uh you know the fact that we see the stock market is generally
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going down but also with a lot of volatility uh is certainly reacting to this uncertainty because one thing that we
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know from finance is that uh uncertainty and risk are having a big impact on the
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value of assets, the value of stocks, the value of other financial securities and and this is clearly on display here.
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You mentioned about uh the the conversation around Feder Powell. How has that impacted what we've seen on the
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markets? Obviously, as you said, we we saw those couple of days where, you know, there was a sharp decline in the
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markets. Uh but, you know, have the markets kind of settled in that it doesn't seem like there's going to be
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any movement to remove Powell at this point? Yeah. You know, I mean, taking a step
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back here, I would say one of the things that most economists would agree on is it is important to have independence for
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the central bank. uh in the case of the US, you're talking about the Federal
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Reserve. We want that to be independent. Uh because we know a lot from economic theory, but also from historical
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episodes. Governments always have this temptation uh to create more money, to uh have uh
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inflation, to reduce rates, to sort of have looser conditions that would help uh economic activity. But but this is a
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shortterm bias because this is creating a boost in the short term uh but then uh
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as uh the the market as the economy uh gets used to it uh then uh the effect is subsiding and in the long run this is
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really damaging because what happens in the end of the day is you are left with the inflation and you don't really have
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any of the uh positive uh economic effects. So, so the reaction to it uh over time was really to have this uh
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central bank who is independent and is going to try to resist the temptation. If the government is trying to uh create
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looser conditions, the central bank will say no, you know, we are worried about inflation, so we are going to tighten
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conditions when we see that inflation is is picking up. Um and and this is very important because then you have the
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restraint from the central bank and you're not tempted to fall into this trap of short-term uh economic uh
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stimulus. Now, when you see uh talks that are being floated about uh reducing the independence of the central bank and
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potentially even firing the chairman of the the Fed, that is creating a lot of anxiety because that is kind of saying,
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you know, what if they're all of a sudden going to change the rules of the game and we are not going to be in this
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uh system that has more uh caution and responsibility. Uh what is that going to do? That's going to be bad for the
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economy going forward. and that is creating a lot of anxiety. So I think we saw a lot of that. I think at the end of
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the day the administration so far got the message from the market that it will not be a good idea to try to replace the
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chairman of the Fed at this point and they said they're not going to they're
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not going to do it. But in the end of the day, when you're thinking about it,
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there is still a lot of uh uh uncertainty going forward about just how independent uh the the Fed is going to
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be, who is going to replace uh Powell uh when the time comes and what will it look like at that point? And is the
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administration then also getting the message in terms of the level of tariffs and and is there somewhat of an
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expectation by those in and around Wall Street that we may see tariffs at some point longer term? Maybe it's 10%
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whatever that number is, but a lot lower than obviously what the president has talked about uh you know so far. And
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maybe are they starting to bake that into what we see you know in terms of the results on Wall Street?
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I think so. Yes. I think the general expectation is that the message from the market is going to be loud and clear and
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that ultimately this is going to rain in the administration and they will not go
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in the wildest scenarios of very high tariffs as uh they were talking about for for a while. uh you know when you're
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thinking about the response of the market uh you're thinking about there is the stock market and I think for a while
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the the administration was saying okay we can live with uh low stock prices for a while because this is just the
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investors this is not uh sort of the the simple uh uh people the working class um
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but uh when you started seeing a reaction from the bond market I think this was a lot more uh devastating uh
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because once you see that the bond market is uh reacting. You basically risk a very major financial crisis. You
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risk the ability of uh the US government to fund its debt and all these things can have uh much more severe
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implications and when this came I think this uh really uh generated some understanding that you know we cannot
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really persist on this path for much longer. So what's the best case scenario
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then to play out that uh maybe serves the purposes of what the administration is trying to do but also kind of leads
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us on a path to to the growth that we I think expect to see in Wall Street uh moving forward.
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That's uh that's a good question. Uh uh I I would say the the best case scenario
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is that uh the administration uh understands that uh the path of uh you know reduced uh independence of the Fed
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and uh increase tariffs this is not a viable path. This is not a stable path and they're just going to uh walk it
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back uh to to a large extent. uh maybe have some modest uh changes but certainly not changes that they were
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discussing and that this is all going to be uh built back in to to asset prices and and we will see uh more come uh in
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in the market going forward. This is probably the the best the best case uh scenario. Whether this is going to pan
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out or not, I don't know. I mean that there there seems to be uh some taste for some uh volatility and some
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uncertainty and we see new measures and new announcements coming out every day. Um so whether we will see the best case
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scenario or not uh it remains to be seen. Either thanks very much for your time today. Okay, thank you very much. Ei
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Goldstein who's professor of finance and professor of economics here at the Wharton School.