The Future of the Fed: Austan Goolsbee & Krishna Guha 4/21/25

0:00Bring in show music, please. This is Squawk Pod from CNBC. On today's episode, Fed, Fed, Fed, plus a little extra. A debate about Fed independence and President Trump's threats to fire Fed Chair Jerome Powell with Vice Chairman of Evercore ISI, Krishna Guha. We're seeing a clear signal from the market that it doesn't like even the idea that the president might try to remove the Fed chair. And where Fed President Austin Goolsbee stands on economic politics and on whether a rate cut is coming. Everything's always on the table, as I say. It's a huge table. Plus the latest on Harvard spat with the Trump administration.

0:47And the religious world mourns Pope Francis, who died at 88 just after Easter Sunday. I never talked to you guys. I went and visited with him. Did you really? I'm CNBC producer Cameron Costa. It's Monday, April 21st, and 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. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. The market was closed for three days. I guess it's making up for some lost ground at this point. Gold was at an all-time high on Friday as well.

1:29Big today too. Yeah, gold is up big. $80. Let's take a look at this. It's an all-time high. Now it's up 2.3 % to$3 ,405 an ounce. The dollar is on a four-week losing streak that we've been watching again pretty closely over what's been happening with that. There are some questions about whether the Treasury Secretary would like to see a weaker dollar and lower rates. But the dollar this morning off by another one and a quarter percent. For the year to date, it's down by seven and a half percent, and those numbers do start to add up. In the meantime, the Vatican announcing that Pope Francis has died at the age of 88.

2:03Francis was pope for about 12 years. He was the first Latin American pontiff. He stressed humility and he made concern for the poor a recurring theme of his papacy. He was also the first Jesuit who was in this position, and a lot of his positions reflected the Jesuits' overall broad views on things. He did alienate conservatives with some of the critiques that came of capitalism and climate change. First non-European pope in 1200 years. Since the 8th century. Yesterday, Easter Sunday, the pope was visible. Got to see him there blessing thousands of people in St. Peter's Square in Vatican City.

2:41He made a surprise drive through the square in the Popemobile and had a lot of people hoping and thinking that he was in much better shape than we had been hearing recently. He did suffer from chronic lung disease and was admitted to the hospital in February for a respiratory crisis that developed into double pneumonia. The Pope also met with Vice President J.D. Vance yesterday. Tributes from world leaders have been flowing in this morning. Francis' successor will be chosen in a gathering of cardinals that's known as the Conclave, and we've all seen a lot more about that recently, too. It's like his last video was with the vice president.

3:14At the end of 2019, I never told you guys, I went and visited with him. Did you really? And interviewed him. Why did you not tell us? Because it was a piece I was going to write for New York Times Magazine. And then the pandemic happened. And so there was no time to, there was no, I never wrote the article. And I was waiting to write the article. and it was all about how all of these corporate leader CEOs were actually going to visit with him. This actually goes back to ESG and capitalism and what was happening with the climate change and everything else. And all of these CEOs, I will keep their names out of it for now, but were going on these pilgrimage almost trips to visit with him and to talk with him about what they were planning to do as it relates to trying to have a more inclusive, capitalistic society and what they thought should happen as it related to their companies.

4:13And all of that is unwound since then? Of course, now all of that is unwound. Obviously, I haven't spoken to him since then. No? He was very encouraged by the idea that all of these businesses were doing it. And it was very interesting to see significant business leaders actually go to visit with the Pope to tell him this. And again, people always say, were people doing ESG as some kind of virtue signal thing or something else? And I always thought to myself, I always go back to the meeting that I went to, which also involved a whole other bunch of people as well. And then I spent time with him afterwards.

4:53But it was, there were a lot of business leaders who actually, I think, genuinely did believe in ESG and in all of the work that they were doing as it related to this stuff because they wanted so desperately for his approval, in fact. Were they Catholic business leaders who were going to be with the Pope? No, no. There were Jewish business leaders. There were Muslim business leaders. There were some Catholic business leaders. It was a cross-section. And by the way, from the oil and gas industry, from technology in silicon valley from banking all all sorts of people was there one person who led the whole big thing who were doing this no and there were people don't know this there were lots of these kinds of meetings that were happening at that time it wasn't just one one trip there were there were a significant number of leaders who were going to do this and in fact at one point one of the pontiffs had gone to Davos, in fact, and actually met with a whole number of people.

5:56What did he meet with a pontiff? A previous one? I believe one of the earlier, I'm sorry, this pontiff had started to send statements, rather, I apologize, to Davos, and then they had sent some of their deputies to actually, actually to Davos to start to meet with business leaders. Nonetheless, it's actually just interesting to think about it. he issued an encyclical on climate change and we'll see it will see as the years go by whether the church and whether the pope should have accident weighing in on that one of the criticisms of this hope is that there were other things that were not totally dealt with sex scandal yes right and he's not going on some of the issues in the open working on what it was a but a lot of people are still skeptical and then an encyclical, a papal, and he's very liberal from Argentina.

6:48I'm not going to say anything bad about him. I mean, a lot of those issues, those scandals have been inherited. This next pope, whoever that is, is going to deal with him, too. But there were just times where it was like, this is your priority at this point when this is still, you know. He's a Jesuit. I mean, I was Jesuit educated, but I can tell you that, you know, I did come back to the church after being educated by the Jesuits. It took a while. But they almost got me. They're so liberal. I mean, it's crazy. But it's OK. Tim Cook had gone to visit with him. Eric Schmidt had gone to visit with him.

7:26Steve Schwartzman, who's Jewish, had gone to visit with him. Again, people who are not necessarily all ESG, even focused people. Brian Moynihan, a Catholic. But there have been a number of trips. Reid Hoffman had done a separate trip. There were lots of different trips of people. I would say this was back in, I would say the majority of those trips were back in 2018, 19, but this was all pre-pandemic. So there was just a whole bunch of people who were going to visit with him to talk about what they were doing, both around climate, which was something that he cared a lot about. And a lot of their DEI efforts, actually, very interestingly, were something that they were talking about with him and other kinds of things.

8:06There were different organizations that did, but also some of them were going individually, Some were going as groups. But it was more business leaders than had gone to visit popes in the past. Oh, this was, I mean, it was like pilgrimages. But that's why I couldn't figure out, like, why? Which was something that was very new. Why? Was it outreach from the Vatican? Well, I think there was two things going on. I think the Vatican was open to this, clearly given this pope's views of these things. And it was very interesting to see that I think a lot of these leaders, business leaders, thought that, and they were moving in this direction, this idea of inclusive capitalism.

8:43Marxism. You can call it Marxism. Other people can call it inclusive capitalism. No, I think the Pope was truly from Argentina. He truly had a worldview that was antithetical to a lot of what capitalism stands for. And I made my, you know, I'm not going to, you know, he just died. I'm not going to say anything. But I was consistent all along with that. To put out an encyclical on climate change, I'm just not sure that a lot of Catholics decided that's what he should be worried about when they had so many other pressing issues that seemed to be on the back burner, that are still on the back burner as a Catholic.

9:22Clearly, there were a lot of business leaders who were taking on the climate issue in a meaningful way, and that was one of the things. Are they taking it? How's that going? Well, right now, by the way, it sounds like it's not going very well because this president is making it. This president? You don't think there's sort of a. This administration on climate? Right. But I think it's. I think it's this administration on climate. So you think it's the administration on DEI and ESG as well, or is it just that societal back. On climate, I think it's the administration. I think on society, on DEI, I think there's a sort of a wokeism that went too far.

9:58I think it's the same thing on climate. I think a lot of, I just think there's a pushback on a lot. We're not getting the net zero any time. Even in Europe, you see with the elections that have happened, the Greens are on the run. It may not happen. I'm just saying I think that the efforts were genuine. Even Klaus is gone. All true. Your guy. All true. And the latest on Harvard, Wall Street Journal is reporting that the Trump administration is planning to pull an additional billion dollars from Harvard University's funding for health research. This is after last week's developments when the White House froze more than$2 billion of grants to Harvard after the school rejected demands, which would have audited the viewpoints of the student body and some other actions.

10:43And prior to that, the Journal's report says that the Trump administration was planning to treat Harvard more leniently than Columbia, which saw$400 million in federal funding frozen over what the White House sees as insufficient combating of anti-Semitism on the campus. The report says Trump administration officials thought that the initial list of demands they sent Harvard a little more than a week ago was a confidential starting point for negotiations. Meanwhile, the New York Times has reported that the list was sent by mistake. I don't know if you if you read that piece, which was this which was fascinating how the folks at Harvard actually got a call from the folks at the administration afterwards saying that the letter was a mistake, that it wasn't supposed to have been sent to them.

11:30They get it on a Friday. They think to themselves, well, this looks like an official letter and it has all these demands in it. We have to respond to this letter. And so, of course, they call their lawyers and all the things happen that we saw. And then, of course, the response from Harvard. And then they find out afterwards that at least the administration privately was telling them we weren't actually planning to send you that letter. That letter was going to be distributed internally or something first before we figured it all out. And now, of course, there's a doubling down, though, that's going on by the administration, not just to suggest it wasn't a mistake, but we're going to take it farther.

12:06Tees will be next. Next on Squawk Pod, Fed Chair Jay Powell versus President Donald Trump. Who will succeed the head of the central bank with Vice Chairman of Evercore ISI, Krishna Guha? If it looks like that person is coming in without weakness, without independence at the beck and call of the president, then you would set up the next Fed chair for failure. And I hope that on sober reflection, the administration will understand. A debate about Fed independence right after this.

12:42Welcome back to Squawk Pod. This next conversation is all about the Fed. Fed Chair Jerome Powell spoke at the Economic Club of Chicago last week, and he weighed in on the economic impact of tariffs. The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth. Both survey and market-based measures of near-term inflation expectations have moved up significantly, with survey participants pointing to tariffs. After years of chatter from Donald Trump about firing the central bank head, Powell commented on the independence of the Fed as well.

13:26Never going to be influenced by any political pressure. People can say whatever they want. That's fine. That's not a problem. But we will do what we do strictly without consideration of political or any other extraneous factors. Within a day, President Trump posted on his own social media platform, quote, Powell's termination cannot come fast enough, end quote. He then commented to reporters in the Oval Office that he hasn't ever been fond of Chair Powell. He's too late, always too late, a little slow, and I'm not happy with him. I let him know it, and if I want him out, he'll be out of there real fast, believe me.

14:07Now, the entire exchange has renewed a debate about whether President Trump can dismiss the head of the Federal Reserve, the impacts if he did pursue doing so, and what kind of successor the economy can expect when Powell's term ends in May 2026. Let's get back to Andrew, Joe and Becky. I want to bring in Krishna Guri. He is the Evercore ISI vice chairman. And maybe you can speak to the question. Do you imagine that the president could fire this this head of the Fed? Is that even conceivable to you? So I think even at this moment, it's probably not likely, but it is clearly in the conceivable set.

14:53It's something that we have to take seriously as a risk as an and I think a serious risk to markets. And if he does that, what is the what do you think is the risk to markets? But then secondarily, what do you think of this sort of shadow idea? You know, it's something that Scott Besson had raised before President Trump was elected. This idea that you could nominate effectively somebody who was in this case, I imagine you'd have to find somebody who's famously dovish and announce their nomination, you know, months ahead of time. in which case that somehow the market sees through whatever this Fed chair is doing with the expectation that the next Fed chair is going to be significantly different.

15:34So let me take those in order, if I may. So first of all, I think we're already seeing like right here and now in the equity futures, in the dollar, in the bond yields. we're seeing a clear signal from the market that it doesn't like even the idea that the president might try to remove the Fed chair. You know, there is there's been some loss of confidence in U.S. economic policymaking in recent weeks. We've seen that in this very odd combination of upward pressure at times on longer term bond yields combined with a weaker dollar. That suggests global investors pulling capital out of the U.S. But what you've seen is ongoing confidence in the Fed.

16:22You've seen ongoing confidence in the Fed, and that is crucial. You've seen those inflation expectations well behaved, well anchored. And that's what will eventually allow the Fed to be able to cut rates when we get to the point that unemployment has increased materially. But if you start to raise questions about Federal Reserve independence, you are raising the bar for the Federal Reserve to cut. If you actually did try to remove the Federal Reserve chairman, I think you would see a severe reaction in markets with yields higher, dollars lower, and equity selling off. I can't believe that that's what the administration is trying to achieve.

17:04Now, with respect to the question of, you know, what are we doing in terms of shadow Fed chair, I think it's not a great idea to have someone out there trying to second guess the Federal Reserve chairman. But it would be less dangerous if that person did not have a seat on the FOMC. And there are no vacancies right now. Right. OK, so let me ask you then a different question, which is, does this kind of interesting meta maybe idea here. We all think that Jay Powell is, quote unquote, independent today. But of course, whoever the next person is, you would hope is going to be independent, too. But it's possible that you would see that next person as a puppet of the administration, maybe not independent.

17:48I don't know. Would the market have the same kind of reaction? So I think it's really important that whoever takes over from Jay Powell should take over in good circumstances, in circumstances where that person looks that he as he continues to have the independence that all Fed chairs have had in the modern era. That's going to set the next Fed chair, presumably someone who Trump wants to occupy that position. It's going to set that person up for success. But if it looks like that person is coming in without weakness, without independence at the beck and call of the president, then you would set up the next Fed chair for failure.

18:26And I hope that on sober reflection, the administration will understand that, look, by all means, it's the president's right to nominate the next Federal Reserve chair in regular order. They should think about how to try to set that person up for success. So it also rebounds to the success of the administration as well. Christian, I worry about trying to, you know, anticipate the future for the Fed because they notoriously have not really been good at doing Maybe it's just the nature of the beast, that it's almost impossible. You're always looking at the rearview mirror in backwards data. If he were to be wrong again, and if inflation isn't really the problem right now because of the tariffs, and we really are going into a slowdown for a lot of reasons, trade wars, everything else, and if we're late, if we're late, and we should be cutting now, and everybody again says, uh-oh, looks like Trump was right and Jay Powell didn't lower rate, it would be bad to go out on a mistake.

19:31So that's what I mean. I don't know if he'd be set up for success. It'd be almost like you should have gotten rid of him earlier. And all these guys are just, they can only be right for so long. I think a lot of times they should get out when the getting's good. So, look, I think it's always the case that the Federal Reserve is only making the best judgments that they can under extreme uncertainty. And it's going to make some mistakes. I think those mistakes are still more likely when you're being hit by very difficult shocks. And a big trade war is a big manmade shock. It pushes inflation up.

20:06It pushes growth down. So is it is it possible the Fed could make a mistake in this environment? Yes, it absolutely is. And the question that you have to ask yourself, the question I think markets have a lot of conviction on is, would you rather have an independent group of people, an independent group of experts trying to make those calls as best they can? Or do you think those decisions would be better made under political pressure? That's the issue. You know, we've batted around a whole bunch of names over the years of potential Fed chairs. And one of the questions we were just discussing earlier is, is there somebody out there right now that you think is, quote unquote, famously dovish?

20:45Meaning to the extent that you would want to nominate somebody who the market would see this way. Who is that person? The old J.P.A. So I'm not actually sure you'd want to nominate someone who is famously dovish. You would actually want to nominate somebody who has very strong hawkish credentials. And so the market would trust them, including to the point where they decided that it was appropriate to get cutting on interest rates. If you nominate someone who has a very dovish reputation, then the bond market would riot. So that's why I think there's interest, for instance, in looking at former Fed Governor Walsh, who does have a reputation as being hawkish.

21:21Again, I think the manner of the appointment would be crucial. Regular order. Because he's known as being hawkish, then he will come back around. That's a different question. I think Krishna's trying to do the Jedi mind trick, though. Not who should be nominated, who Trump wants. No, no, but actually what he's saying is, what he's saying is, Walsh would have the credibility because he looks hawkish, but he's saying, in fact, he would be dovish. Watch out for the bond market. Because the bond market would think he... But you think Trump is playing the three-dimensional chess where he's thinking about how the bond market's going to react?

21:55You've told me that Trump's playing four-dimensional chess. No, don't tell you I've told you that. Don't say I've told you that. I don't know any more than you whether there's a method to the madness at this point. So you think that President Trump would think, wow, war should be good for the bond market. I'll nominate him. Again, I think the key thing here is it's strongly in the administration's interest to take a deep breath and let Fed Chair Powell run things for the remainder of his term. That's the best shot of keeping inflation expectations well anchored, keeping bond yields well behaved and allowing the Fed to cut without causing real problems in markets.

22:33But when they look for a successor, they'll want someone who has hawkish credibility, but then has that credibility to cut in the way that they would be hoping. Krishna is sending out his wish list to the administration. This is what the markets are hoping for. Please listen closely. It's also letting Jay Powell. He's making his own bed. If it does, you know, if they are late, Trump can say, hey, I tried. And I let him stay and everything else. It's tough. I don't end, I don't. I don't end BFM either. Yeah, it's tough. Kristen, thank you. Next on Squawk Pod, more Fed with Chicago Fed President Austin Goolsbee.

23:10Paul Volcker was a dear friend of mine. And his widow, when he died, gave me that original two by four that they mailed to him that says, Please lower these insane interest rates. And I keep that on the shelf right next to my desk to remind me sometimes the Fed has to do the hard job.

23:33This is Squawk Pod. You're watching Squawk Box right here on CNBC. I'm Becky Quick along with Joe Kernan and Andrew Ross Sorkin. It is now time for a very special interview this morning. Steve Leisman is at the table. That is going to be one of the pieces. But we have another component part that may be even bigger. The more important piece. Austin Goolsby joined just now. Chicago Federal Reserve President Austin. Thanks for joining us. Yeah. Great to see you, Steve. So tell me how you balance this as a policymaker. This idea there is not really long term expectations out of control, but you have people raising prices.

24:10What's the right call on policy in that context? I think that highlights the dynamic that we've got short run expectations about inflation going up and people are expressing fear that we're going back to a kind of a 21 or 22 environment where where prices are are getting too high and inflation is is starting to rage a little out of control. But the core long-run expectations not rising, at least in the market variance, I think that's a very important fact. So can you cut preemptively to address potential economic weakness? Look, everything's always on the table, as I say. It's a huge table. But the Fed is supposed to be the steady hand here.

24:58What we need to do is look through, get the through line and where are things going to be, let's call it, after the 90-day pause and going through the year. Tariffs are one input. They're one shock that happens in the economy. But conditions change all the time. We've got the productivity growth rate has been surprisingly and lovely, in a lovely way, been very strong for a couple of years. I would definitely want us to get a bead on whether tariffs or supply chain disruptions are affecting productivity growth. And we just need to see most of the U.S. economy is domestically driven, as you know.

25:42At the end of the day, imported goods are only 11 percent of GDP. So unless it jumps out of just its own 11 % lane, the impact of tariffs on the macro economy could potentially be modest. Now, when I'm out here in the Midwest and we at the Chicago Fed are talking to people, we're the most affected district by tariffs because we're the most manufacturing oriented. And folks have been saying for months that they were nervous about what potential impact would be if the tariffs were too big, that it would kind of throw us back to the 21, 22 period or even back to the COVID supply disruptions. I kind of think the through line is we've got to get our way through this.

26:30You know, out here, if the storm signal goes off, people know go down in the basement and wait it out. And that's kind of writ large onto the economy. That wait it out impulse is the thing that we've just got to get through to figure out what to do. Austin, the dollar has been a little weaker, bonds a little weaker as well. Does it matter that the president is talking about the potential to terminate the Fed chair? Look, I'm not going to get into the discussion on that. I know the secretary, I agree with the secretary of the Treasury when he said Fed independence is a jewel box that we don't want to mess with.

27:11All economists, I've been at the Fed for a little over two years. Before I was ever at the Fed, I would tell you, economists are basically unanimous that Fed independence is critically important. And to see why, just look at the countries where they don't have Fed independence. Inflation is higher. Unemployment is higher. Growth is worse. So I think where there's a lot of back and forth that is outside the purview of what the Fed, in my opinion, should be doing is following its legal mandate. Stabilize prices, maximize employment. And that's it is the conditions that determine what Fed action are, not not anything.