Powell Probe Stirs GOP Concern, Threat to Stop Trump Nominee

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1:28Carol Massar:moves the business. Let's create smarter business. IBM.

1:58Carol Massar:This week's daily podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. Well, as I mentioned, we want to go all in on not just the consumer in this economy, but also the latest with how people are viewing that probe into the Federal Reserve. I want to bring in a name that's absolutely familiar to our audience. Heather Long, she's chief economist at Navy Federal Credit Union. She spent years at The Washington Post. And before that, she was at CNN. She's watched the Federal Reserve for many, many years. And Heather, we had booked you a long time ago before we knew what would happen, before we found out what would happen over the weekend with the Federal Reserve.

2:34I just want to get your reaction to what many consider an unprecedented move on the Fed's independence. Yeah, it was really something to see last night, that video from the Fed, from Fed Chair Powell coming out so strongly. He's known as Mr. Congeniality in Washington, D.C. He always has been striking a very diplomatic tone. But last night, the gloves came off and he really pushed back strongly. This this was the breaking point for Fed Chair Powell and his congeniality in Washington. You know, I think a couple of things really stand out to me going forward. Number one has been the strong reaction, as you all were talking about earlier, from some Republicans, not just Tom Tillis, but also Senator Murkowski from Alaska.

3:19You know, both of those senators from the GOP saying that they would block they would block any Fed chair nominee from President Trump until this issue is resolved and the criminal probe or criminal allegations are pulled back against Fed Chair Powell. I thought that was really striking to me. And the other thing I think people really forget in the Fed debate is the FOMC technically elects its own chair each year. So there is a hypothetical world where even if President Trump gets his own nominee through the process in the Senate, it is possible that Fed Chair Powell could stay on as a Fed governor after his term expires May 15th and even still be elected chair or some other leadership role of the FOMC.

4:13So do you think this probe makes it more likely he'd stay on because he wants to be the Fed, send this signal to markets that, hey, I'm not going anywhere. The Fed is going to remain independent. I'm going to stay put. Definitely. And I think one of the things that struck me, I've covered Fed Chair Powell since his first days. I used to be one of the Fed reporters in the room there and meeting with him regularly. And one of the things that's always stood out to me from my very first one-on-one meeting with Fed Chair Powell is how much of an institutionalist he is. He's spoken openly about his admiration for Paul Volcker and what he did.

4:50Part of the reason he undertook, Fed Chair Powell undertook this massive renovation of the Eccles building is because he really believed that he wanted to literally leave the Fed, the building of the Fed and all the people in the Fed and the institution of the Fed better off when he stepped down as Fed chair. And so I think you're right. If he feels that the Fed is in its independence is truly under threat, he will stay on and he will try to play that key role.

5:20Carol Massar:Well, I think reflecting on Jerome Powell's tenure as the Fed chair is a good segue to talk about your views on how the economy is looking right now. We hear this term K-shaped economy all the time from your role now. Is that an accurate portrayal of the real state of the economy in the U.S.? Yeah, Emily, thanks for asking. So I believe I was the first person to coin the return of the K-shaped economy last summer. I wrote about it in a Washington Post column in early August, did the Moody's Inside Economics podcast, among others. And the term really took off after some of those appearances I made.

6:01And look, I believe we are in a K-shaped economy. And the reason that I say that so confidently is not just the Moody's data that many people have cited, but we have 15 million members here at Navy Federal Credit Union, most of whom are in the middle class. And we can see it in our credit card data. It is literally two different worlds going on in our credit card data. I mean, maybe three, but three is a much harder thing to put a letter on. Maybe E just doesn't feel right. But look, basically, the new dividing line in America is around$170 ,000. And that's the top 20 % families who earn household income above that.

6:41Those people we can see in our data and they continue to grow their spending every month, six or 7%. They're spending heavily on discretionary and travel. Then there's kind of the middle class, let's say the kind of 80 to$120 ,000 consumer. Those people, it's flat to a little bit up. It depends on the month. It was kind of the Costco Christmas for the middle class. We saw a huge jump in people shopping at Costco, Sam's Club, TJ Maxx. We're talking double digit growth and spending in the holiday season at those type of value and discount stores. And then there's the bottom of the K, you know, folks who are sort of$65 ,000 and below.

7:24And I kid you not, a number of those people we can see in our data are actually spending less, Not just less than in 2024, but in some cases, less in inflation adjusted terms than they were spending in 2019. So, Heather, we only have about 30 seconds left and then we're going to we're going to get you back on soon. But is any of that data indicating to you that there could be a recession on the horizon? I don't think so. Not immediately. But I think there's going to be ongoing angst. The K-shaped economy isn't going away anytime soon. And I believe we're in a jobless boom right now. And that that continues to aggravate the frustration on Main Street as well.

8:02People are not getting the wage increases that they want and are used to the past several years, let alone being able to get another job. So put all that together. And it's a it's a rough winter for the middle class. Heather Long, appreciate you joining us. Heather is chief economist for Navy Federal Credit Union. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

8:29Carol Massar:They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit lifemd.com slash goodlife.

9:24Carol Massar:deep in the work that moves the business. Let's create smarter business, IBM. Being a small business owner isn't just a career, it's a calling. Chase for Business knows how much heart and effort go into building something of your own. That's why they make business growth their priority. The Chase team takes the time to understand your mission, where you are now, and where you wanna go. Their broad range of solutions is designed with you in mind so you can bring your ideas to life. From banking to payment acceptance to credit cards, you can conveniently manage all your business finances all in one place with their digital tools.

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10:35Carol Massar:Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. All right, everybody. Tick-tock, as Carol Masser says, when we get close to 18 minutes until the end of trading. Tick-tock. Tick-tock. Taking a look at the S &P 500. We just heard an update from Charlie Pellett and Bill Maloney. We're off for best levels of the day. The S &P down up, rather, close to two-tenths of 1%. The Nasdaq Composite of four-tenths of 1%. The Dow higher by one-tenth of 1%. I want to bring in Aaron Cannon. He's co-founder and CEO of Clear Harbor Asset Management. The firm manages just under$2 billion.

11:12I haven't spoken to him in a few months. He joins us once again from Stanford, Connecticut. Aaron, you always send us some great notes ahead of time. But one thing that maybe not was on radar for a lot of people was the continued attacks on Fed Chair Jay Powell. It seemed like that had been kind of pulled back a little bit. And then late yesterday, we hear read in The New York Times. And then just minutes later, we see that video from Fed Chair Jay Powell. What do you make of this unprecedented move, not just from Powell, but also from the Department of Justice? Yeah, it certainly wasn't on our bingo card 24 hours ago.

11:48And it's a sad moment. And I think, you know, the criminal investigation that potentially could ensue right now, it's a Department of Justice subpoena, I guess. For what reason? Because he's cut rates, but he hasn't done it quickly enough. Well, let's not forget Powell cut rates 100 basis points in 2024, 75 basis points in 2025. And it seems like there's quite a bit of consensus around the table on Powell's side that, you know, maybe the economic data is strong enough, which President Trump should cheer, to possibly put the Fed on hold here for a little while until we see either, you know, growth running very strong or inflation becoming problematic.

12:37So it's really shooting the administration in the foot and really their objective going into the midterms, I think, is to prove that the economy is in great shape, which has been trending as such and I think will potentially be the case in 2026. But but this doesn't help, you know, having these sort of coercive tactics to tactics to try to sort of nudge the independence of the central bank is just an anathema to, I think, objective observers. So we're getting sort of the, you know, the quick reaction from the banks and from the analysts right now about what this could actually do to markets. PGM out and PIMCO saying that there's a risk that the fight that President Trump is having with the Fed will drive rates higher.

13:22JP Morgan's trading desk is, quote, cautious on U.S. stocks after the Fed probe, after this Fed probe. Where do you stand? Yeah, I think it's interesting. What has the market done since since we've opened today? Market opened up, down and has rallied. Why is it rallied? It seems like it's rallied because Secretary of Treasury Besson wasn't even aware that the Department of Justice was going to take this sort of action and has gone to the president, according to Axios, and indicated that this was really not helpful to the cause, to the cause of growing our economy, to messaging appropriately to the country now and all the way into the midterm elections.

14:02And so the market has rallied. So that's helpful. Maybe the president backs off. Maybe there's an off ramp for sure. But I tend to agree with, I think you said it was PGM and PIMCO, that this could become problematic if these types of actions seem to be more common over the next several months. I mean, look at last week, we had this sort of cap on announcement from the president. They wanted to cap interest rates on credit cards. Well, that all sounds fine to Danny, except who's going to be the most harmed by that? The actual credit card user who can't pay their monthly credit card bill. And that's the problem.

14:46The banks will remove those lines of credit. They'll cancel their credit cards. I pay my bill every month. I won't have a problem. So he's trying to address the K-shape challenge in the economy. 38 % of Americans who don't own stocks but have a lot of credit card debt will be the most harmed by this. So, again, very counterproductive.

15:05Carol Massar:The noise, the headlines when it comes to Fed independence and potentially political pressures on the Federal Reserve, how do you position your client portfolios based off that? Do you buy gold as a hedge? Do you sell your U.S. equities? we're trying to think katie about the long run but we're also right from the start with our relationship with our client we're trying to understand what are the what's the client's own sort of emotional risk tolerance how much volatility in their mind can they withstand not just can they afford to lose but can they withstand sort of what we refer to as the sleep well at night factor and creating a portfolio around that so your question about those asset classes that maybe mitigate some of the volatility that could ensue within the equity market.

15:54Yes, gold is actually an asset class that we've been touting. I've written about it for quarters. Tim's probably received it in my notes over the last many years. It's something that we've believed in. It's a response to a lot of different things. One is the declining confidence in our fiat currency system generally at global level. And the other one is sort of this diversification of foreign bank, central bank reserves away from the dollar and even the euro. And that was really accelerated after Russia's invasion of Ukraine when we shut off dollar access and euro access to Russia. So countries like China sort of said, well, when we do trading with developed nations that do not like us so much, instead of buying euro denominated or dollar denominated fixed income, we're going to go buy gold.

16:41And you can see that foreign reserves at the central bank level over the last five years have risen from a 6 % weighting to a 21 % weighting. And so we still think there's a place for gold in portfolios for our clients. Hey, Aaron, I want to switch gears a little bit because we're getting some breaking news. Cities set to eliminate about 1 ,000 jobs this week in a cost cut push. I'm looking at shares of city. It was down earlier in the session. It's just still down 3%. So stock not moving much on that headline, actually moving just a little bit higher on that headline. On Meta Platforms, also the New York Times reporting that it will cut around 10 percent of Reality Labs unit staff.

17:19The job cuts that we're seeing, look, these are anecdotal right now at this point, but they're still numbers. It's still data. How do you view the labor market right now and the connection with the consumer? Because the consumer certainly powers this economy. Yeah, I think the labor market is reasonably strong. We saw that in the nonfarm payrolls data on Friday. We saw that in the JOLTS data last week. A lot of anecdotal evidence is that it's reasonably strong. I think we have to be really careful when we look at a 50 ,000 per month print like we saw on Friday with nonfarm payrolls. Historically, that number over the last couple of years has been more like 150 ,000 or 200 ,000.

17:59But if you look at our net immigration numbers in this country and you annualize the last, let's say six months under the new sort of Trump immigration regime, it speaks to the reality that it's 150 to 200 ,000 per month net job growth for 2024 or 2023. It's probably closer to like 30 ,000 or 40 ,000. And we printed 50. So I think those numbers are OK. Again, why shoot the economy in the foot with some of these? Aaron, got to run, unfortunately, against the clock. Aaron Cannon of Clear Harbor Asset Management. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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21:26Carol Massar:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. I'm guessing Paige Smith had a special evening, but it was not with some friends unless you consider her sources at these consumer finance companies. Her friends. Paige Smith is consumer finance reporter for Bloomberg News. The reason I'm saying Friday night is because Friday night was when we got the news that the president out on social media with the statement he wants to cap credit card interest rates at 10%.

22:00My first question that I had, can he do that? That is a great question. And I think that, first of all, just to back up for a second, this has been sort of a very chaotic weekend, I would say, and into Monday morning. There are a lot of unanswered questions of what exactly the president can and cannot do around this statement. I will say, so the initial statement that the president would like to cap credit card interest rates at 10 percent went out on Friday. And then the president again reiterated that stance on Sunday evening on Air Force One. So it was a sort of doubling down on his statement.

22:38And it's unclear the legal levers that he can pull. He wrote on True Social, affordability effective January 20th, 2026. I, President of the United States, calling for a one-year cap on credit card interest rates of 10%. We're looking at what, this is the first day where markets have been open after that statement, that edict from the President. JPMorgan chased down 1.8 % right now. Capital One Financial. off its worst levels of the day, but still down about 6.7%, Citigroup down about 3.2%. Capital One is the one that could be most affected by something like this. So it's important to note that a number of major Wall Street banks are credit card issuers, and Capital One is the largest credit card issuer by loan volume in the US.

23:26But, you know, J.P. Morgan is vastly impacted by this or could be impacted by this. American Express. You know, if you think of any sort of bank that has a major credit card portfolio, right? And those are the folks who would be hit the hardest if implemented. Again, early days, we need to see in a substantive proposal, which we have not seen yet.

23:47Carol Massar:Okay. So I'm sorry that you had to work this weekend, but you've done some great reporting. I have to say my initial instinct when I saw this news, you know, capping interest rates at 10 % was, oh, maybe that would be good for the end consumer. But your reporting shows that it's not exactly that clear cut. Certainly, it's not that clear cut. And I would say what we have reported on so far is that a number of analysts are actually pointing out that this really could result in less credit being available to U.S. consumers. Because if you think about it, if the economics don't work, then these are banks.

24:22They're very focused on their bottom lines. It would make sense for them to essentially pull back on credit that would be available to U.S. consumers. And, you know, there was a note from UBS that I noticed.

24:34Carol Massar:They said it would take an act of Congress for such rate caps to be in place. In summary, they said that they believe that these caps are unlikely to be implemented. What's come up so far about what Congress would be able to do, if anything? So what we know so far is that there have been a number of bills proposed over the years. More recently, there was a bill proposed by Senators Josh Hawley and Bernie Sanders, which is quite interesting. You know, you kind of think of the political spectrum there, and they've come together to sort of agree on this one individual idea. But we will have to see again.