Fed Governor Resigns & Tariff Battles

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1:32This is Bloomberg Law with June Grosso from Bloomberg Radio. I have a open spot on the Federal Reserve Board. I'm very happy about that. President Donald Trump suddenly has a chance to fill an opening at the Federal Reserve earlier than expected after Fed Governor Adriana Kugler announced her resignation on Friday. Kugler's exit unfolds amid unprecedented political pressure from the White House on the central bank over monetary policy, with Trump often launching personal insults at Jerome Powell, the current chair. Joining me is Catherine Judge, a professor at Columbia Law School. Kate, what's your reaction to Kugler's departure?

2:20I was surprised. She is the next governor to leave naturally. Her term expires early in 2026. So it's clearly a spot that President Trump is going to be able to have available in the relatively near future. But this short window of time changes dynamics in a meaningful way. Among other things, her spot was seen as a likely position for the person that President Trump would like to bring in to be the next chair. So this really potentially accelerates that process and could lead to even more intense pressure on Powell to step down from his position as chair. When President Trump was leaving the White House on Friday, he said that he was very happy to have an open spot.

3:07And he told reporters that she was stepping down because she disagreed with, quote, too late on the interest rates. That's his derogatory term for Powell. But does that align with her publicly stated views? We have not seen anything to that effect in what she has stated publicly. We have seen disagreement between Kubler and Michael Barr on the one hand and other members of the board on the other hand on matters of regulation. And it does look as though the current board, under the effective leadership of Vice Chair for Supervision, Michelle Bowman, is going to engage in a deregulatory agenda. So on that front, it does look like there was a difference of opinion, but that's not necessarily a reason for her to accelerate her departure.

3:56If anything, that's a reason for her to stick around and to let her voice and vote be heard. Trump says he's going to appoint the next Fed governor. Will you explain why he basically has to appoint the next Fed governor to fill her spot? So he has to choose the chair among the governors. Powell's term as chair expires in May of next year. His term as governor doesn't expire until 2028. It is possible that Powell will step down as governor at the same time he steps down as chair, but that is by no means guaranteed. and because there are no other additional slots open. Chris Waller, who is a Republican, who Trump previously put on the Board of Governors, is a possibility for Fed chair.

4:46And if he wants to promote Waller, then he wouldn't need to use this slot for purposes of introducing somebody who would then take over as chair. But if he does want Kevin Hassett or Kevin Warsh or any of the other names that have been bandied about, this slot might be his critical opportunity. Are there any indications as to whom he's favoring for the role? There's been rumors that Hassett has been taking over as lead. Kevin Worsh's name has been around for a long time. We've certainly seen both of them actively campaigning for the job in their public statements and been very supportive of the lower interest rate policies that Trump would otherwise like to see in place.

5:33But we have heard nothing official from the White House with respect to who's likely to be the next nominee. The Open Market Committee voted 9-2 to leave rates unchanged. So one more vote won't necessarily make a difference. It's hard to know. I mean, and this is really hard. So first of all, the Fed is already facing an environment in which they might be changing course independent of a new chair coming in. And the most recent jobs numbers look weaker than they expected. And there have been some revisions. So a variety of reasons to think that there might have already been a modest change in course underway.

6:10But you're right. I mean, one of the key things to keep in mind is the Federal Open Market Committee is a 12-member committee. And the chair or kind of the expected chair is only one of those votes. And so one of the things that Trump has to kind of keep in mind and that we all have to keep in mind as we're watching is how effective is the new chair going to be garnering support for a meaningfully different trajectory for policy? And that's going to be one of the open questions as somebody new comes in, both what is the interest rate trajectory they want to see and what are the tools they're going to use to try to convince fellow members of the Federal Open Market Committee that actually a different policy course is for the best.

6:51In the past, have Fed governors not been able to convince the Open Market Committee to do what they want? What we haven't seen in the past is quite as clear of a mismatch between what the president wants to see happen and what the current interest rate policy is. So we've certainly seen nominees come in because they are meant to kind of change the trajectory. Paul Volcker famously was appointed because there was suddenly an appreciation that inflation and managing inflation had to be the priority. That being said, that was an insight that the board also shared and that president shared. So he did have some struggle at times with aspects of this policy, getting the level of support he wanted.

7:39On the other hand, he was actually pushing against the president, pushing against short-term political will and pushing for kind of a longer-term vision that aligned with the core mission of the Federal Reserve, which is fighting inflation and promoting maximum employment. So in that instance, it was a very different set of dynamics. And so this is a different type of transition because we have a president who had just been so outspoken for such a long time about wanting monetary policy to look dramatically different than it has. Have you ever seen this kind of pressure from the White House on the Fed chair?

8:18No, no one has. We've certainly seen pressure from the White House on the Fed chair in the past and on the Fed Reserve in the past. The classic concern is that the president always wants monetary policy to be somewhat more accommodative than the Fed oftentimes wants it to be. There are certain times that those interests are alive. During a depression, during difficult times, accommodative monetary policy is the right policy given the Fed's dual mandate. But in moments like now, where the Fed's looking long term and trying to think about what does it need to do to make sure that it successfully fights off the recent bout of inflation, there's a possibility for conflict.

8:55And so LBJ famously kind of pushed around William McChese Martin. And so we've certainly seen presidents in the past that have pushed around Fed chairs and pushed around the Fed. And that's because they oftentimes do want monetary policy to be somewhat more accommodative than is prudent, given the medium to longer term interest in trying to maintain stable prices. And that's when those conflicts have come into place. But what we haven't seen is this type of continual pressure where the Fed chair is really targeted in an ongoing and repeated way. And where the president isn't just suggesting that rates should be a little lower or that monetary condition should be somewhat more accommodative, but is really seeking what seems to be a very different approach to monetary policy than the current Federal Reserve is pursuing, at a time where there is still some reason at least to worry about inflation.

9:50The nominee, whoever Trump chooses, will have to be confirmed by the Senate. But if that person is then chosen as the chair, that does or doesn't need Senate confirmation. That also is a Senate confirmation process. And there's also this additional oddity. This person is going to face kind of the ringer. There's a Senate confirmation to fulfill the remainder of Kugler's term. But the way the Federal Reserve works, oftentimes for agencies, once you are confirmed, you have a period in office that dates from when you are confirmed. So you might have five years from the time you actually take office, for example.

10:30The way the Federal Reserve works is there are these 14-year terms on a staggered basis. And they are 14-year terms in part to limit the ability of any one president to appoint too many different governors. But partly because of that distinct, staggered structure, when somebody is nominated to fulfill a seat for somebody who's leaving before their end of the term, as Kubler is, they only are confirmed to the end of that term. So in theory, if this person manages to go through hearings and confirmation in time to fill the seat before it naturally becomes vacant, there might have to be a nominal second process to have the person actually confirmed again when the term expires.

11:17Trump on Friday called for the Board of Governors to usurp the power of the Fed chair. He said, in all caps, the board should assume control and do what everyone knows has to be done. I mean, there's a lot of things to say there. So first of all, as we were discussing earlier, each member of the FOMC is not just the board. The FOMC, the Federal Open Market Committee, which determines monetary policy, is a 12-member committee. So all seven members of the board of governors have votes on that committee, but so do five presidents. So the policymakers involved are not just governors, and the governors are exercising their independent judgments.

11:56We saw two governors actually dissent, and they did suggest that more accommodative monetary policy was appropriate. But we saw the rest of the governors go along and actually agree with Powell that the preferred approach was the right approach to take. The Supreme Court in a May decision suggested that Trump couldn't remove Powell because of policy disagreements. Is there any feeling for whether the administration is still trying to get him removed? Yeah, I mean, there's two different issues. So one, we did serious effort with the renovations, which really looked pretextual, right? What we know is Trump wants lower interest rates.

12:39He blames Powell for the interest rates being what they are. And so he was looking at the cost overruns and trying to use that as potentially a basis for removing Powell for cause. That has seemed to have passed, at least modestly passed. But it does suggest that Trump might still be on the lookout for other pretextual grounds for removal. The other issue that remains an issue particularly and actually becomes more of a live issue since Kugler is stepping down is might he try to appoint somebody else a chair and not remove Powell? but merely demote Powell. And here the law is a little tricky, and the Supreme Court decision, which wasn't even really a decision as part of their shadow docket, did it resolve the question of whether Powell can be demoted?

13:24The statutory language is very clear. Governors of the Federal Reserve can be removed from the role of governors only for cost. So there's very clear statutory protection there. By contrast, the chair, the various vice chairs, have four-year terms as opposed to 14-year terms, and there's no explicit for-cause removal protection. There's arguments that he can still be demoted only for cause and not for policy differences, but there is a real risk that that legal question will be tested in a more pressing way now that the window of time between when he can get a new nominee onto the board and when Powell's term as chair comes to a natural end, now that that window has become longer.

14:07This falls into the more questions than answers category. Thanks so much, Catherine. That's Professor Catherine, judge of Columbia Law School. This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. DoorDash, the largest food delivery company in the U.S., is building its own delivery drones and has gained the necessary FAA approvals to operate them commercially, the latest in its effort to delegate more orders to robots as a way of cutting delivery times. Bloomberg's Natalie Lung reports the company says it has been conducting pilot programs with various restaurants, some of which have seen their order volume grow during the test period.

14:49The effort marks an expansion of DoorDash's in-house robotics efforts to reduce reliance on human couriers for some orders, as their wages constitute a key expense to the business. Drones are also a way for DoorDash to cut delivery times on orders from more remote locations that some dashers may not want. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode, available on Plus and Pro Plans. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal.

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16:56Treasury has taken in$150 billion from tariffs and will be adding about$200 billion next month for totals that nobody's ever seen before, frankly. But the challengers to President Trump's tariffs say they rest on a, quote, breathtaking claim to power that no president has asserted in 200 years. And a federal appeals court appeared skeptical about Trump's authority to issue the sweeping global tariffs under an emergency law that has never been used for that purpose and doesn't even mention tariffs. In May, the U.S. Court of International Trade ruled that the vast majority of President Trump's levies were issued illegally and ordered them blocked.

17:44The Federal Circuit Court of Appeals gave the Trump administration a temporary reprieve. But during the high-stakes oral arguments last week before the circuit's entire slate of 11 active judges, it appeared that several were skeptical of the government's arguments. A decision finding against the tariffs will almost certainly be appealed to the Supreme Court. My guest is Jimmy Garoulet, a professor at Notre Dame Law School and the former undersecretary for enforcement at the Department of the Treasury. Jimmy, will you start by explaining what authority President Trump is using to impose these tariffs?

18:25President Trump is using a law called the International Emergency Economic Powers Act. And it goes by the acronym IEPA. And IEPA does authorize the president to impose economic sanctions on individuals, entities, even countries in response to an unusual and extraordinary emergency. So that's the precondition or the exercise of these economic sanctions. The president has to declare that there is an unusual and extraordinary emergency that has its source in whole or in substantial part outside the United States, and further, that threatens national security, foreign policy, or the economy of the United States.

19:18So that's the statute that the president is relying upon. There's a couple of very serious problems with using AIPA. First and foremost, AIPA never mentions tariffs. The word tariff does not occur even one time in the text of the statute. And second, AIPA was enacted by Congress in 1977, and no president in the history of AIPA has ever cited AIPA as authority to authorize the imposition of tariffs. This is the only president in the entire history of IEPA that's ever cited IEPA's authority for imposing tariffs on foreign countries. The challenges here were a group of Democratic-led states and small businesses.

20:10What was their basic argument? Their basic argument was first that IEPA just doesn't apply, that it does not provide authority for the president to impose economic sanctions. And again, for the reasons that I just articulated, tariffs not mentioned in the statute, no president has ever used IEPA to justify the imposition of tariffs. So that's argument number one. Argument number two is that even if IEPA did apply, that there are some serious questions about whether or not the president is properly using or satisfied the requirements of IEPA. For example, what is the unusual and extraordinary emergency that justifies economic sanctions in the form of tariffs?

20:56And here the president has articulated many different so-called emergencies. On the one hand, it's a trade deficit. That's the unusual and extraordinary emergency. On the other hand, it's the fentanyl crisis, the importation of fentanyl from Mexico, Canada, and China. And third, he's even cited immigration. You know, immigration is the emergency. But first, there's a question about, well, is the trade deficit really an unusual and similar emergency? We've had trade deficits with countries around the world for decades. I mean, that's nothing new. Trade deficit with China, trade deficit with Mexico, Canada, with the EU, that's nothing new.

21:48So what is so unusual and extraordinary about trade deficits today that, again, triggers the application of IEPA? And then there's another problem with the actual application of the statute. And when we look at the fentanyl crisis, for example, approximately 88 % of fentanyl that's consumed in the United States comes across the Mexican border, the border with the U.S. and Mexico. Only 8 % comes across the Canadian border. So if IEFA is being used or the emergency is fentanyl involving the importation from Canada, Canada is only responsible for a very small percentage of fentanyl coming across the U.S.-Canada borders.

22:35There doesn't appear to be a nexus or a close nexus between the so-called crisis and the target of the tariffs and the sanctions that are being imposed on various countries. So what was the government's response to that? One response is that, well, this involves foreign affairs. And in the area of foreign affairs, the Supreme Court has recognized that the president has plenary powers. You know, the government needs to speak with one voice in dealing with foreign affairs. And that one voice should be the president, you know, the executive branch. So it's, again, oh, the president has plenary, virtually unlimited powers in dealing with other countries.

23:19On the other hand, that argument runs into a serious problem, and that serious problem is the U.S. Constitution itself, because Article I, Section 8, plus 1 states that Congress will have the power to lay and collect taxes, duties, imposts, and excises. And tariffs are really a form of a tax. It's a form of a tax. And therefore, the power to lay and collect taxes falls within the power of Congress, you know, not the Congress. And I think there's one other very important argument, and I don't think it came up in this recent argument before the U.S. Court of Appeals for the Federal Circuit. It's a very basic fundamental principle of our democracy.

24:04and our founding fathers were very concerned about too much power residing in the hands of any one person or any one branch of government. And that's why we have a democracy based upon separation of powers. And here, if you follow the government's argument and reasoning, then the president has this unlimited power. One person can decide to impose tariffs on any country or every country in the world can decide what the percentage of the tariffs should be. Should it be 10 percent? Should it be 25 percent? 125 percent? Against what countries and for what reasons? And so it seems to me that the president's position really flies in the face of this very fundamental bedrock principle of separation of powers on which our democracy is based.

24:59This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work, I'm Carol Masser. DoorDash, the largest food delivery company in the U.S., is building its own delivery drones and has gained the necessary FAA approvals to operate them commercially, the latest in its effort to delegate more orders to robots as a way of cutting delivery times. Bloomberg's Natalie Lung reports the company says it has been conducting pilot programs with various restaurants. some of which have seen their order volume grow during the test period. The effort marks an expansion of DoorDash's in-house robotics efforts to reduce reliance on human couriers for some orders, as their wages constitute a key expense to the business.

25:42Drones are also a way for DoorDash to cut delivery times on orders from more remote locations that some Dashers may not want. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting Work Mode. Available on Plus and Pro Plans. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same. The thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment.

26:21It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart.

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27:28PayPal Open, built for all business. Visit PayPalOpen.com to get started. That's PayPalOpen.com. So the panel of judges seemed to sharply question the government's position. One judge said tariffs seem to have no friends in the text of the emergency law. Do you think that a majority of the judges might rule against the tariffs? I think based upon the questions and the tenor and some of the questions that were asked during the oral argument, I think the federal appellate court is very skeptical of the government's position that IEFA provides authority from the president to impose tariffs. So I'm cautiously optimistic that the appellate court will likely reject the government's argument and then find that I have no supply here.

28:26So then the critical next question, the critical next step is going to be before the Supreme Court, because if the government loses, there's no question that they'll appeal the matter to the United States Supreme Court. And there, the outcome is really up in the air. Because it's an en banc panel, the decision here can be appealed directly to the Supreme Court. Yeah, and there what we've seen is that, you know, historically, just, you know, the first six months of the Trump administration, the U.S. Supreme Court has been very deferential to the executive branch with respect to claims of executive authority by the Trump administration.