Fed man walking? Trump v Powell

0:02The Economist

0:10Hello and welcome to The Intelligence from The Economist. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25I'm lucky enough to be able to do some of my work from home. To be honest, I kind of like it as part of a balanced working diet. Turns out, it seems that feeling is shared particularly by workers in the English-speaking world. And electric vehicles are absolutely positively unequivocally hands-down better for the environment when it comes to tailpipe emissions. But that's not the only kind of environmental impact that vehicles have.

1:01First up, though.

1:10I would say the Fed really owes it to the American people to get interest rates down. That's the only thing he's good for. Here's a pattern that we've come to know well in the second Trump administration. It starts with an incendiary statement. This time, a week ago, a vibe straight out of Mr. Trump's time telling contestants on The Apprentice that they're fired. Oh, he'll leave. If I ask him to, he'll be out of there. But I don't think he's doing the job. 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.

1:53Then the backing off, the climb down, a claim that that's not what he meant or someone else is to blame for the kerfuffle. The press runs away with things now. I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates. This is a perfect time to lower interest rates. If he doesn't, is it the end? No. This flavor of unveiled threats and equivocation was bad enough back when it was, say, the head of the FBI or a string of chiefs of staff. But when it's the head of the independent institution that the whole world looks to to see how economic winds are blowing, that schtick from The Apprentice is a very dangerous game.

2:37We have once again seen quite incredible back and forth from President Trump on economic policy. this time with regards to the Federal Reserve. Simon Rabinovich is our U.S. economics editor. He voiced the nuclear option of firing the Fed share, saw the total meltdown in markets, turned around and backed off that. That option is still something that potentially is on the menu. And although Jerome Powell is safe for now, the Fed's institutional independence does appear to be at greater risk today than it was just one month ago. And in a nutshell, Simon, I mean, what do you make of that dynamic, what we've been watching as an expert in this stuff?

3:20Well, look, on one level, it's not surprising. President Trump, going back to his first term, has not much liked Chairman Powell. The core problem is that the Federal Reserve is truly an independent central bank, which means that it does not do the president's bidding. As a general rule, Donald Trump would like to see lower interest rates to basically make the economy run hotter. The Federal Reserve, its concern is partly about economic growth, specifically ensuring that there's not a lot of unemployment. But its other focus is on inflation. And these days, you know, inflation is still very much a worry.

3:56With President Trump's tariffs coming in, the Fed has to do what it can to make sure that there's not going to be a big rebound in inflation. And so as a result, it's basically at loggerheads with President Trump. And so whoever would run the Fed, I think President Trump would not be terribly satisfied with them. Right now, it's Chairman Powell, who, by the way, is somebody that Donald Trump did actually nominate to be the Fed chair back in 2017. But he does not like his independent streak. And therefore, you've had this war of words. What was a bit more surprising this time was just the intensity of President Trump's rhetoric, Rick, really suggesting that he was considering doing something to dismiss the Fed's share, which would have been crossing something of a Rubicon, raising questions about whether the Fed's independence was at risk.

4:47And that was something that the market was profoundly concerned about. And you think it was the market reaction then that prompted the climb down on the part of the president? That certainly was a big part of it. The other element of the story was the way that the market reaction was refracted through the White House. Donald Trump obviously has a team of advisors, many of whom are somewhat cowed by him and don't always tell him what they truly think because they're afraid that if they go against his wishes, they may end up on the chopping block. So they almost had to wait to have a little bit of the market reaction to say it's bad right now, but this is a preview of how things would actually get much, much worse if we went ahead with this idea of trying to fire Chairman Powell.

5:34By the way, the firing of Chairman Powell, it's far from a given that Donald Trump would actually be able to do that. But simply trying to do that would have led to dramatic moves in markets. And we had kind of a small foretaste of what those moves would have looked like. And that enabled his advisors, people like Scott Besant, the Treasury Secretary, Howard Lutnick, the Commerce Secretary, to say that if we continue to go down this path, it's going to be very, very bad indeed. So, Simon, this is not, given the presidency so far, Mr. Powell being out of the woods, right? This is a temperamental matter, it seems.

6:11But you say it's not obvious, it's not clear how a firing might happen. What would it look like? What are the barriers? Well, I mean, to give you the current lay of the land, the Fed Chairman's term, the current term for Jerome Powell, extends until May of 2026. So, you know, we're a little bit more than a year out before his term actually ends. To fire him before then, the way that current law is structured, there would have to be cause. And cause means not just disagreement about monetary policy, but Chairman Powell having committed some kind of extraordinary malfeasance in running the Fed. You know, our understanding is that Donald Trump and lawyers in the White House were looking at whether they could argue that the way that he's been running policy does actually constitute cause.

6:57Courts would not have accepted that. So the other channel that they have been exploring is whether they can basically change the law that governs the way that agency heads are appointed. And that gives the president more ability to basically fire them at will. And that is something that they are doing with a series of kind of unrelated separate agencies that possibly could have follow-on consequences for the Fed. There is one big caveat, though, which is that the Supreme Court itself has indicated that it believes the Fed is different from other agencies in Washington, D.C. It's not an executive agency, especially as pertains to its running of monetary policy.

7:43So even if the Supreme Court agrees with the White House that the president can fire agency heads at will, there probably would still be a carve-out for the Fed. You know, it's just a central pillar of the American economy, of the governance system, that having an independent central bank is what enables the economy to be strong and resilient. And so you really have this legal framework that means that President Trump probably can't simply fire the chairman. And in your view, perhaps he would be more circumspect about doing so, given what he did to the markets the first time he started throwing these threats around.

8:24Well, Donald Trump is, you know, somebody who basically will act according to his whims. And I think we're in a position right now where it wouldn't be unforeseeable that there might be some kind of a repeat of the dust up that we've seen over the past week. The basic predicament for the Fed is that growth is going to be slowing because of Donald Trump's tariffs. Therefore, President Trump wants to see lower interest rates. But we also know that inflation is going up, potentially going up quite strongly in the next little while. And so for that reason, the Fed cannot cut. Moreover, given all of the threats from Donald Trump and given that the Fed knows that it needs to make markets believe that it truly is independent and needs to reaffirm that belief, the simple fact that Donald Trump has had a run at the Fed will make Chair Powell and his colleagues that much more disinclined to cut rates.

9:16They don't want to be seen to be doing the president's bidding. So I think it's entirely possible that in the next couple of months, as the economy weakens, but as the Fed holds its ground and does not cut rates, you know, we may well see a rerun of the sorts of tensions that we have seen in the past week. But in one view, this set of interactions leaves Mr. Trump looking a bit beaten. Absolutely, he is looking beaten down. If you look at our in-house approval tracker, You know, his ratings have plummeted to below where they were at this time in his first term. The economy is not going well. People are concerned.

9:53Businesses are concerned. That is weighing on his approval ratings. And ultimately, that is eating into his political capital. And potentially, at some point, it's going to begin to shake Republicans' faith in Donald Trump, which would open up kind of one of the big checks on his agenda, losing the faith of the American public and in turn losing some of the backing from Republicans who until now have been willing to stand with him through thick and thin. Simon, thanks very much for joining us. Thank you, Jason. My pleasure. If you're interested in seeing that poll tracker that Simon mentioned tracking Donald Trump's ratings slide, you can find it in our app and on our website.

10:44Working from home, for those whose jobs permit it at all, it comes with ups and downs. On one hand, awkward video calls, virtual meetings, somehow you're muted still being a thing. On the other hand, dodging the daily commute and maybe a few more minutes of sleep. We spent a lot of time on the show talking about the working from home phenomenon and how it would shake out. And the data are still coming in. Five years on from the COVID pandemic, thrusting everyone out of the office and into their home offices, we now can step back and see what this working from home world looks like. Archie Hall is our Britain economics correspondent.

11:31Two really striking things stand out in some of the research I've been looking at, particularly a big cross-country survey by Nicholas Bloom at Stanford University and some colleagues. The first of those is that the return to office has kind of stalled out, that people are actually often still doing a pretty decent chunk of their week working from home, a day, two days maybe. And the second is there's huge variation from country to country. So some countries, Canada, Britain, America, really, really enthusiastic about this trend and college graduates spending between one and a half and two days a week working from home on average.

12:01And some other countries, Europe, East Asia, really much less enthusiastic. And so there's real variation across countries, across regions and so on. What's going on? Yeah, there's a lot in the soup. Wealthier countries, depending on how long your lockdown was, different industries are more keen. But the interesting thing was if you throw that all in, the thing that really jumps out in the data is actually a cultural dimension. The single strongest relationship that Blum and his colleagues found was actually with individualism. So the notion of how individualistic versus collectivist society is.

12:32They used a measure put together by a Dutch social psychologist. And that actually proves quite a strong relationship. And at one end, you do have your hyper-individualistic English-speaking countries, your Americas, your Britons, your Canadas. And at the other end, you have your more collectivist countries, countries like Japan, countries like China, countries like South Korea, a number of African countries as well there. And the correlation's not perfect by any means, but it's actually a really stunningly effective variable explaining what's going on. Explaining what's going on from the perspective of bosses who are mandating this or that or employees who are choosing to do this or that.

13:02All of the above. If you think about what work from home requires, it requires a certain degree of willingness to grant autonomy to your employees. You have to say, okay, I'm not going to be able to watch you in the office and make sure we're all sitting here in the same room, working together, pushing the same direction. But actually it's fine if you're sitting in some dinky home office, but I can trust that you're doing your thing. And if that means we check in less frequently, if that means that you're often making work cooperate around your life more. So you might have kids at home, you might dip out for an errand the way you wouldn't in the office.

13:32That's all okay. And that's a thing that we can work with and mould the working environment around. They found that kind of some cultures seem to be more willing to embrace that than others. And obviously that can change. All of this is not set in stone, but so far that's the pattern we've seen. What I think is more interesting and what's been less discussed is actually the society-wide effect of just living in a world where lots and lots of people can and do work from home. And there the spillovers, it seems to me, have been much more positive. There's a few examples of this. The one that really stands out, I think, is looking at the housing market.

14:01People try to avoid having long commutes if they can, but work from home does make those longer commutes more viable. If you're only going into the office, say, three days a week, maybe rather than five, then actually having that trek be a bit longer, a longer drive, a few more stops on the train. That's something that's more workable for people than having to do it every single weekday. And you can actually see that in the housing market. The data is really, really striking. I was looking at a lot of cities in America. If you look in New York, since before COVID, the central zip codes, the swankiest bits to Manhattan or the kind of very posh bits of Brooklyn just over the river, actually home prices have gotten cheaper since 2018.

14:34And correspondingly, if you go out into the suburbs, house prices have gone up a huge amount, 30%, 50%, really, really, really substantial increases. And so you can literally see people now saying, okay, I am more willing to go further out. And that stretches the economic footprint. And from a kind of economics perspective, that uses the housing market much more efficiently. You now have lots of houses that actually can accommodate workers doing those really high productivity jobs in the centre of the city, which wouldn't have been possible a few years ago. And so that's a pretty striking, pretty positive effect.

15:01But a fairly high level one, right? What about these perceived effects on individual happiness, what have you? People not having, as you say, to do the commute, having more free time. Of course. And I think the thing that really matters about work from home is its flexibility. When you're in the office, you have to sit there and for better or worse, just do your work. And work from home... Whereas when you're at home? I mean, one hopes. Work from home makes those boundaries more flexible. But it does mean that Things like parenting, for instance, where often actually being able to have a bit more flexibility around when you're present, when you're not, can be really helpful.

15:32The kind of funny example that is also from some research by Nick Bloom and a colleague is that midweek golf has boomed. People are much, much more willing to show up on a Monday or a Tuesday. And in a certain way for them, that seems great. They're able to make their hobbies, their work, collaborate more and work better together. And hopefully the work still does get done. In most cases, there's no reason to think it doesn't. But also from a kind of economic productivity perspective, The golf course sitting there unused for much of the week is actually pretty inefficient. The golfing share of GDP is going to edge up in a world where we're really sweating that asset and making sure every minute of golf course is being maximized.

16:04So I see that as quite a positive. And as you say, there are a million data points here and ways to look at this, but working from home as a thing on balance, people's acceptance of it, bosses acceptance of it, what's the literature telling you? What's your gut telling you? Is it a good thing for the world? My gut is a pretty good thing for the world. There's one asterisk to that that's worth pointing out. And this is particularly striking in the American time use data. People are spending more time alone than they were five years ago. So in the US, it's about just over half an hour from recollection a day people on average are spending alone.

16:37And that's not surprising. You're in the office a lot of the time you spend with other people. And there's reason to worry potentially about a kind of uptick in loneliness as a result of this. Obviously, this depends. If you have a family at home, it's very different to living alone. But that is one question. And that feels like it should be a surmountable problem. Midweek golf would probably help. But overall, my sense of being looked into it is that actually the kind of economic efficiency unlocks in some kind of very, very abstract, but very real sense all the way from those golf courses to those houses that are much cheaper in some of the previously more expensive bits of the country.

17:05It's a really positive development. Right. Archie, thank you very much for your time. Thank you.

17:22Electric vehicles are marketed as the environmentally conscious choice. Renault ZD, 100 % electric, 0 % emission. But if you watch this ad, there's a pretty big asterisk after the word emissions. Air pollution is just a massive issue. It's responsible for something like 4.7 million early deaths worldwide. That was at least the number in 2021. And that's about the same as dementia, road traffic accidents, malaria and suicide all combined. Emily Steinmark is a science correspondent for The Economist. And the promise of electric vehicles or EVs is that they can combat some of that air pollution, right?

18:03But it turns out that they're not a miracle cure. They're actually still contributing to air pollution. Contributing how? So road traffic is the leading contributor to dirty air in London, for example. Stats show that it's responsible for something like 60 % of outdoor particulate dust. And although EVs don't have an exhaust, and so don't produce exhaust fumes, particulate matter that way, and can be powered by clean, sustainable energy, they still, amid other pollutants, come into all cars. So these are small particles that come from brakes, from tyres, and also from tyres rubbing on the road.

18:42So that breaks down not just the tyres, but the roads themselves. And those particles are every bit as dangerous as what's coming out of tailpipes? So there's a bunch of different things in tailpipes, but one of the things that we're really worried about is this particulate matter. So these are particles that are smaller than 2.5 microns in diameter. And yeah, part of that's coming out of the exhaust, but also could be generated through other things. So non-exhaust sources of these particulate emissions. And when they're this small, the thing is like when you inhale them, they get into the lungs and then they can reach other organs through the bloodstream and can cause all kinds of problems.

19:19It can increase the risk of heart disease and stroke and lung disease and cancer. And a recent study by people at the University of Southampton actually found that some brake pad dust can be more damaging to human lung cells grown in a dish than particles from diesel fumes. So it's pretty serious stuff. Scientists estimate that EVs probably produce more of these non-exhaust type particles than other cars. And that's really because of their batteries. It makes them heavier on average than other cars. EVs have a sort of technical reason why they might be heavier than other cars. And then they're also subject to the general trend of wanting bigger cars.

20:03But just to be very, very clear about this, although there is not zero risk then from EVs in terms of dirty air, it's still better than driving a gas guzzler, surely. Well, I mean, for air pollution, it is the case that most, about 60 % of particular dust does not come from the exhaust, but from these non-exhaust sources of emissions. So just based on that, you might say, okay, well, maybe if these produce more of them, then they're worse. But there are things about EVs beyond the fact that they don't have an exhaust pipe that offsets some of this stuff. So for example, they have an extra braking system called regenerative braking, which just means that they don't rely as much on their brake pads.

20:45They can slow down in a different way. And when you take that into account, on the whole, it does seem that EVs are better than petrol and diesel cars, even if you take into account that they tend to be heavier. And also, a recent study found that actually we perhaps tend to overestimate the wear on tires. And there's like this weird jump between the very first studies and then all the secondary literature, and they tend to overestimate it. So it could be actually that EVs are even better than the current data suggests. And so it is still going to be a victory for air pollution if everyone just switched to EVs.

21:26But how to move from relatively clean EVs to squeaky clean EVs when it comes to air pollution? So first of all, you want to make sure that you get as much regenerative braking as you can. but one of the things that would be really helpful would be if we could start regulating keeping track of these non-exhaust emissions just how we've already done with the exhaust fumes and perhaps we can bring down them as well by thinking about better materials for brake pads or tires or even roads and then I think probably the most important thing and that I will always beat the drum about is let's just have smaller cars like it's gotten out of control we know that these enormous cars are disastrous for road safety.

22:09And when you have EVs, they need to be heavier anyway because of their battery. Like, we should think about whether we need that massive, massive battery that's going to have that super, super long range that perhaps most of the people buying EVs are never going to have to use that range. Maybe we can make do with a smaller car that has slightly less range. And that would protect society better, not just from road traffic accidents, but also probably from air pollution. Emily, thanks very much for your time. Thanks for having me.

22:57That's all for this episode of The Intelligence. We'll see you back here tomorrow. Thank you.