Janet Yellen on the Fed & the Treasury 7/22/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod, Janet Yellen, former Treasury Secretary and former Fed Chair. This is really disconcerting to markets. On the public dispute between President Trump and Yellen's successor, Jay Powell, threatening the independence of America's central bank. When that kind of pressure drives monetary policy in a country, high inflation is the inevitable consequence. And an M &A report from inside the railroad industry draws comments from the Oracle of Omaha. It's a very un-Berkshire-like move to say that you're going to bring an investment banker to tell you your options because Warren Buffett has always known all of his options.

0:49He knows his options. News that broke first on Squawk Box. You don't want to miss it. I've just got off the phone with Warren Buffett. Plus, the rest of today's news, the struggling partnership between OpenAI and SoftBank, the big, beautiful cost of legislation, and new Coke. There's not enough pure cane sugar in the United States to do this for all the beverages that are out there. It's Tuesday, July 22nd. Squawk Pod begins right now. Stand Becky by in three, two, one. Cue it, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the NASDAQ market site in Times Square.

1:28I'm Becky Quick, along with Andrew Ross Sorkin. Joe is out today. News just out from OpenAI. The firm saying it has now entered an agreement with Oracle to develop 4.5 gigawatts of additional Stargate data center capacity in the United States. Stargate, the American artificial intelligence push that includes SoftBank. If you remember, that was announced in January at the White House. According to a blog post, OpenAI saying that the new capacity combined with an existing site in central Texas will mean more than five gigawatts of data center capacity under development. That's halfway, they say, to their 10 gigawatt goal over four years.

2:07The Stargate project teased back in January. Now, OpenAI is saying it expects to exceed its initial commitment. Now, that news, it's worth saying, follows a report from The Wall Street Journal that claims Stargate is having trouble moving into high gear. It said that it scaled back near-term plans and that OpenAI and SoftBank are butting heads over details of that partnership. A statement from OpenAI and SoftBank on The Journal's story said they are both committed to delivering 10 gigawatts of new compute and they are moving forward with urgency. I should say 10 gigawatts of compute is like a shocking amount of energy.

2:43And what's so interesting to me always about the AI world is that they don't talk about it in the context of the number of chips or the speed of the service or whatever it is. It's in the context of energy production. Whether they're actually able to do this or how far along they really are, I think we don't really know. I've been super impressed, by the way, with their biggest competitor in a way, which is Elon Musk, in terms of their ability to do this. That, I think, comes from his engineering background. And that was an energy story. And I think what's so interesting right now about what's happening in front of us is that so much of the story is an energy story.

3:21And it's guys in Silicon Valley. And I'm not saying that they don't know how to do it, but they're all trying to figure out the whole world of energy and the number of electricians you need and all of the power pieces. And the permitting and the infrastructure. It's a whole other it's a whole other universe. Right. And so when I first read that journal story, I said, oh, that makes sense that this is not an easy challenge to overcome. Well, it kind of made sense, the idea that maybe there were some butting heads there, too. You thought, OK, that that could be happening with some of the issues on this.

3:53Maybe not a surprise to see a quick blog post that says, no, no, we are making progress. And here's what we're doing next. Our report says that Berkshire Hathaway, the Berkshire Hathaway owned railroad BNSF is working with Goldman Sachs and looking into a takeover of a rival railroad. That's according to Semaphore as well. The site says that it's unclear if BNSF is considering buying Norfolk Southern or CSX. Reports last week said that Union Pacific has been looking into Norfolk Southern for a takeover. If that deal came together, it would create a railroad that spans the entire country and would leave BNSF at a disadvantage.

4:32The one thing I will say about this, not knowing anything about this report, not talking to anybody at Berkshire about it, it would be a very un-Berkshire thing to do to go to an investment banker to try and figure out a deal. That's not been the way deals have been done in the past. They kind of shun investment bankers on these things. They seek their own advice. Again, I don't know anything about this. I don't know what BNSF is doing separately, but it's a very un-Berkshire-like move to say that you're going to bring an investment banker to tell you your options because Warren Buffett has always known all of his options on his own and has never really been keen on having a banker advise him on what to do.

5:12Yeah. When I read this, I thought maybe they were trying to, that Goldman might be trying to sell the other railroad. The other railroad to. To a Goldman Sachs. To a Berkshire. I'm sorry. To a BNSF. Right. And then for a hot minute, I thought, well, there's going to be a new CEO in town running the place. Maybe he'll use bankers in the future. I don't know. I would be surprised if that is the case right here. I think you may be on to something if the bankers are like, hey, we have a deal and we're shopping it around type of thing. But I cannot imagine Berkshire or a Berkshire major unit saying, hey, help me think through my strategic options on this.

5:49That was the only thing that it got to me. I 100 % agree. A new congressional budget office report saying the president Trump's tax and spending bill will add$3.4 trillion to the national debt over the next decade and will increase the number of people without health insurance by 10 million people by 2034. The nonpartisan CBO taking a final look at the legislation after it narrowly cleared the House and Senate and Trump signed it on July 4th. The analysis said the law will result in$1.1 trillion of net spending cuts. The loss of decreased federal revenue by$4.5 trillion compared to if the measure had not passed.

6:31Of course, there's lots of debate over the math and how they approach it. Whether you take growth into account with GDP. It's a big question about what the GDP number is, meaning if you believe the GDP is going to be 2.8, 2.7 percent, which is what the Trump administration has said, or if you believe what the CBO believes, which is that it's closer to 1.8. That's a huge delta. It is. Tees will be next. Coming up next on Squawk Pod, Janet Yellen, Treasury Secretary under President Biden and Federal Reserve Chair appointed by President Obama. And now she's weighing in on both roles. As soon as Secretary Besant was nominated, I called him and offered to provide any advice that would be useful, and that offer still stands.

7:18So I would like to see him be successful. It's a tough job, and so is managing America's monetary policy. I don't believe that the president actually has the ability to fire Chair Powell, except as the law specifies for cause. We'll be right back.

7:41This is Squawk Pod. Up and enter, Q.

8:13year versus estimates of 3.2 percent. The company also just announced it's going to launch a version of Coke made with cane sugar in the U.S. this fall. Now, this comes after pressure, remember, we talked about it on the broadcast, to release a product with cane sugar from President Trump on Truth Social last week. He said he had been talking to Coca-Cola about using real cane sugar, and apparently now it's happening. We'll see how it all pans out. The original question was, Was it going to be all their sodas? And we thought no at the time. We thought, yeah, there'd be a version of it that you get.

8:45Wall Street Journal wrote a story over the weekend that talked about how there's not enough pure cane sugar in the United States to do this for all the beverages that are out there. That you'd have to import a whole lot more pure cane sugar. And I'm not even sure when or how or how you would go about doing that, particularly when you're talking about tariffs and the like. But it would be interesting. The version in Mexico has always had pure cane sugar. And that's been a commodity. that's been a hot commodity that people have tried to get their hands on. So this should be interesting, too. Could be a new market opportunity.

9:15We'll see. In our podcast and TV broadcast yesterday, Treasury Secretary Scott Bessent said the Federal Reserve should undergo a massive review, existential in scope, into how the central bank, its facilities, and finances operate. What we need to do is examine the entire Federal Reserve institution and whether they have been successful.

9:44The Fed feud has been brewing for weeks between President Trump and the chairman, Jay Powell, who he appointed in 2018, over the chairman's conviction that staying put on interest rates in recent cycles is the best possible strategy to continue the Fed's relentless fight against inflation and support a healthy job market. Now, recent comments from representatives of the administration on renovations at the Fed's headquarters, this is a decades-old building in Washington, have kicked up the drama and even sparked a response from Jay Powell himself about the costs of elevators and HVAC updates. Powell's term is up in May, 2026, and the jockeying for getting the nod from a president seemingly eager to move on is also in high gear, leading some to wonder if Treasury Secretary Scott Besant wants that job as well.

10:33We got into all of that today with a woman who held both jobs. The only person to have done so, Janet Yellen, who served as President Biden's Treasury Secretary. Andrew takes things from here. I want to talk about the high tensions taking place between the White House and Federal Reserve Chair Jay Powell, the state of the economy, and so much more. Joining us right now, first on CNBC, is former Treasury Secretary and former Fed Chair Janet Yellen. We're thrilled to have her on the broadcast this morning. Before we even get into it, I want to read you, if I could, an op-ed co-written with Ben Bernanke, Yellen writes the following, recent attempts to compromise that independence risk lasting and serious economic harm.

11:15They undermine not only Mr. Powell, but also all future chairs and indeed the credibility of the central bank itself. So let me start with this question, which we asked Janet Yellen. We also asked Scott Besant recently. If, in fact, Jay Powell were to be fired, ousted or otherwise pushed out, what would happen to the market? Well, I think we got a taste of that when President Trump announced that he had shown a letter to Republicans that would call for Chair Powell's ouster. And while the market reaction was brief, what we saw was the exchange value of the dollar declined, longer term interest rates moved up in the stock market declined.

12:07Now, President Trump quickly said he had no plan to fire Chair Powell. But I think that gives you directionally a sense of what would happen. Look, importantly, markets rely on the independence of the Fed and the Fed's commitment to achieving its congressionally mandated goals of price stability and maximum employment in assessing the soundness of the U.S. economy and their security in terms of returns they can expect investing in the United States. And when a president threatens to remove a chair unless he radically lowers interest rates with the stated purpose of helping the government finance its borrowing, not the congressionally mandated goal of price stability, but to ease financing costs on the outstanding federal debt.

13:16This is really disconcerting to markets. And what we've seen throughout history, both U.S. history and history around the world, is when that kind of pressure drives monetary policy in a country, high inflation is the inevitable consequence. And we've seen that in the United States as well. That happened during World War II. Ultimately, in the 40s, we saw double digit inflation in the United States and the Fed really rebelled. And there was an agreement in 1951 that the Fed should not have any obligation to help the Treasury finance its debt payments, but rather to focus on price stability and full employment.

14:10Janet, let me ask you this. There is a perception that the Fed has been wholly independent, that historically presidents have not made the kind of comments that this president has and that this is all new. The truth is that to some degree, this is not new. You can go back 1965. You know the story. LBJ physically shoved Fed Chair William Martin against a wall at his Texas ranch as he was demanding that he lower interest rates. And I wonder when you start to think about that story or you start to think about the story that Paul Volcker used to tell about when he was brought into the Oval Office with Ronald Reagan, how we should think about the very concept of the Fed as an independent entity.

14:59Well, you're absolutely right. There have been episodes in the past that we know about now where presidents have attempted to pressure Fed chairs. We've seen what happens when that occurs. And probably the most prominent example would be Richard Nixon exhorting Arthur Burns to hold interest rates down before the 1972 election. And what that ushered in in the United States was a period of stagflation, weak growth, high unemployment, high inflation. And it really took Paul Volcker to come in. And it cost us a very deep recession to re-anchor inflationary expectations to get them down. So this kind of pressure, which has sometimes existed, but certainly not in my experience, not during the Clinton administration or any subsequent administration that I'm aware of.

16:08We see that the consequences are very poor for the economy. we end up with higher inflation, worse economic performance, and it undermines the global role of the dollar and the willingness of foreigners to invest in the United States. Secretary Yellen, on that point, there is a lot of concern about President Trump inserting someone from his administration directly into the Fed. There's this idea that the Fed is supposed to be apolitical. But I wonder if you think that that was broken down to some extent when you went directly from chairwoman of the Fed to the Treasury Secretary, going directly into an administration, Lael Brainard doing a similar move with that.

16:55I just wonder if you think that that door between the administration and the Fed should be closed a little more tightly, more of a Chinese wall to prevent any sort of perception of a lack of independence at the Fed. So it has not been uncommon. Many Fed chairs have had past experience in the White House in an administration. This was true of Greenspan as well. And I suppose it's natural because presidents come to know people who serve in their administration and gain confidence in their judgment. What's really important, though, is when an individual is wearing the hat of Fed chair, that they have the capacity and willingness to make fact-based judgments and to pursue the goals that are congressionally mandated, namely price stability and maximum employment.

18:00That becomes their job. And they have, I believe, whether it was myself or Bernanke or Greenspan, I think all of us were able to establish a track record for independence, staying out of politics, getting, you know, not succumbing in any way to short term political pressures, behaving in a nonpartisan way. And the track record, by and large, although all of us are human and may have made some mistakes, I think the Fed's track record over many decades has been one that's been successful. We've had low and basically stable inflation. The post-pandemic experience was an exception. But look where we are in the economy now.

18:53inflation is coming down and it's close to the Fed's 2 % goal. The labor market remains strong with 4.1 % unemployment. And really, the United States was like every developed country that experienced a surge in price pressures during and after the pandemic. I guess I would ask if the key is just making sure that you're apolitical when you're in the job that you're not too exposed to any pressure that comes from the administration. Do you have any concerns about the TAP candidates who have been mentioned as the potential next Fed chairman? I guess that would include Kevin Hassett, Kevin Warsh, Scott Besant.

19:40Those have been some of the top names along with Waller. So I'm not going to comment on individual individual candidates for this job. What is very important is that the president choose a person who strongly believes and will defend the Fed's independence and keep it divorced from short-term political pressure. And it concerns me when I hear President Trump say a qualification for the job is that the person must have the views that interest rates need to be cut radically. I believe the person needs to carefully look at the data, consider economic trends, work with the other members of the Federal Open Market Committee, and make fact-based judgments that reflect a commitment to achieve the congressionally mandated goals.

20:44And keeping financing costs low for the federal debt is not one of the goals. And it would be very dangerous to pursue that, as I said. But that is a sure road to high inflation. Secretary, though, to the extent that we just had Kevin Warsh on the broadcast last week, we've had Kevin Hassett on the broadcast. Obviously, we've had Scott Besson on the broadcast recently, all three of whom have praised the president, have praised the president's economic policies, have called effectively for lower interest rates themselves. Is that something historically that other potential nominees for this role have done?

21:28Well, I honestly can't recall past selections of Fed chairs in which candidates have come out and actually expressed their opinions about the direction of future monetary policy. I think most candidates in the past have indicated, as I said, a commitment to fact-based analysis, making judgments depending on how the economy performs and in light of the achieving the mandated goals. I want to ask you just a separate question, and maybe it's a personal one, about the collegiality of the Fed and former Fed heads and also former Treasury secretaries, at least historically. And maybe I'm wrong here.

22:23Most maybe talked in private about these issues with each other. I know there are dinners and things that have been set up over the years between former heads of the Fed and former heads of Treasury. But I don't know if it's all spilled out in public in such a way where former heads of these units are then writing op eds critically in the press out there about their successors. And I haven't even and I and I don't think I've seen those in the role then criticizing back, which is to say you probably saw that the current Treasury secretary made some comments about you and your China policy and made what I think was he was attempting to make a joke about mushrooms and beer.

23:10But I'm curious just how you think about that. So, as you said, there is a tradition in which former Treasury secretaries and Fed chairs get together with an incoming Treasury secretary to provide the benefit of their advice and insights from their own experience. And there is a kind of camaraderie that has developed among former Treasury secretaries and Fed chairs, all of whom are given the profoundly important job of stewarding the American economy in a way that is successful. And personally, my hope would be that Secretary Besant will be very successful in his role as Treasury Secretary. All of us know how difficult the job can be and how challenging it is.

24:16As soon as Secretary Besant was nominated, I called him and offered to provide any advice that would be useful. And that offer still stands. So I would like to see him be successful. We do, however, have significant policy differences. And he hasn't he hasn't reached out to me to seek my advice, but I stand ready to give it. Let me ask you a separate question, which is, you know, he had proposed before President Trump was elected this idea of a shadow Fed chair. That was actually something that he developed and then made public this idea. There's an argument already being made to some degree that there is a shadow Fed chair.

25:02We may not know who that name is in practice, but that by default, come next May, there will be a different person in that role. And the likelihood is it's one of the names we might have discussed and that those individuals have made a pledge to some degree publicly or privately or will have to that they will lower interest rates and that the market is already expecting that and therefore planning for it and seeing through whatever happens between now and then. What do you think of that idea? Well, I think that that's a very dangerous idea. And I hope you're wrong that the market is assuming that a person will not be independent and will cave to political pressure.

25:48I think this is one of the dangers of what President Trump is doing, insisting that he will only put in place a Fed chair who believes in lowering interest rates. And as we noted earlier, you can see what the market reaction is going to be to that. You know, Secretary Besant even yesterday expressed his belief that monetary policy should be independent. And I think most market participants continue to expect that the next Fed chair will act independently. But this idea of creating a shadow Fed chair immediately casts a shadow over whoever it is that gets the assignment next May of becoming Fed chair.

26:43that it impairs their credibility with the markets and creates a problem for them right from the outset where people will expect that they're political. Secretary Yellen, you mentioned that you think inflation is coming down and kind of under control. What do you think about the economy more broadly, how things are going? Well, I think the economy has been remarkably resilient and is in basically a good place. But I do have concerns going forward. The tariff policy, we still don't really know what it's going to be. So there remains a lot of uncertainty around what the level of tariffs will be going forward, what the response of other countries will be.

27:33We are seeing some limited pressure on prices of goods that are most exposed to the tariffs, things like apparel, toys and the like, household appliances. I expect, because it's still in a way early days, that we're going to see further pressure and more significant pressure on inflation as a result of the tariffs over the remainder of the summer and into the fall, although we need to wait and see. And we're beginning to see some softness in the labor market, although the unemployment rate remains low. Average job creation over the last three months has been running at around 150 ,000 jobs per month, which is fine.

28:30But hiring rates are low. Quit rates are low that suggest some softness developing in the labor market. And as the tariffs begin to take effect, household incomes are going to decline. And that can really reduce spending significantly. I think that the uncertainty about tariffs is weighing on capital investment spending as well. And so we could see stagflationary kinds of outcomes in the months ahead of weaker employment and rising inflation. And I think that's what we need to keep an eye on. A couple other quick questions for you. One is Mohamed Alarian calling for, I don't know if he's calling for it, Becky.

29:26Well, he's suggesting that Jay Powell should step down in order to protect the Fed's independence. His quote is, if your objective is to protect the independence of the central bank, then it's better that he stepped down than to stay on and have the attacks multiply. What do you think of that? Well, I disagree with that strongly. I think Chair Powell is completely committed to the Fed's independence. I don't believe that the president actually has the ability to fire Chair Powell, except as the law specifies for cause. And I think that he should fill out his term and stay on until his term expires.

30:08What do you think for cause means, by the way? Some gross mismanagement of monetary policy or the Fed or some corruption. A serious breach of his responsibilities as Fed chair, which I don't believe there is any such basis. Let me ask you two other quick questions. We've talked for many years, Secretary, about crypto. I think you have been a critic or at least a skeptic. And we have watched crypto just explode. Obviously, the Genius Act just passing last week. What do you think now? Well, I have concerns about some of the legislation that was passed. I convened, I believe it was in 2022, the president's working group on financial markets to make recommendations about the appropriate regulation of stable coins.