Monday Moneybeat: The Fed fight

Editor's note: The following text is a transcript of a podcast story. To listen to the story, click on the arrow beneath the headline above.

JENNY ROUGH, HOST: Next up on The World and Everything in It, the Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Good morning, Nick, Good to be with you.

EICHER: David, tensions between the White House and Fed Chairman Jay Powell seem to have hit the boiling-over point. The administration is taking its criticism beyond the level of policy disagreement … it’s now pointing to cost overruns in the Federal Reserve’s headquarters renovation, suggesting mismanagement. Do you see it as a serious attempt to push out Powell, or is it more political posturing to increase the pressure on him to cut interest rates?

BAHNSEN: Well, they’re certainly trying to set the stage to either terminate him or get him to resign. It’s, of course, completely bogus and disingenuous about this issue of cost overruns on the project. So it’s sort of a pretextual manipulation, and it’s really quite concerning.

The hard part is that I’m in agreement with the administration that I believe the Fed should be cutting rates and that the reasons being offered are not satisfactory. The problem is it is not the administration’s call to make, and we have laws that do not allow the executive branch to terminate the Federal Reserve chair because they disagree with monetary policy.

So you have to decide if you care about the process or not. I think markets care about the process. I think all of us will care about the process very much for years to come if this is successful in undermining the process.

The irony is that the underlying issue is actually one I think the president is right about—but going about it all of the wrong ways right now, including this highly disingenuous attempt to stir the thing with the renovations on the building.

So I am watching carefully, and at this point I’m not sure that their path is going to be to actually dare to terminate him, as much as trying to force the resignation. Chairman Powell has said he won’t do it, but there is a human sense in which you start to wonder: Is this really worth it? If I were Chairman Powell, would I want to go through this agonizing process?

It’s a vulnerable time right now. No question.

EICHER: Maybe what makes this seem so serious now is we’re hearing names floated of who might replace Powell if he’s pressured out or fired. There’s been speculation that Scott Bessent could be in line as a replacement. But Bessent’s background seems more suited to his current post as Treasury Secretary than Fed Chairman. What do you make of that—and what does it signal?

BAHNSEN: I certainly would far rather have him at Treasury. I believe he would rather be at Treasury, and I think the president would rather have him at Treasury.

What I think is going on there is the president is signaling to a couple of the other people that are in his ear, interested in the position—both of them named Kevin. Kevin Warsh, my old colleague from Morgan Stanley, who has been a Fed governor before and someone I think very highly of, and Kevin Hassett, the National Economic Council director, National Review guy, and someone I’ve known very well for a long time.

It was not my impression, candidly, that Kevin Hassett would be interested in the position going into the Trump 2.0 term. But the word now is that Kevin Hassett is interested in being Fed chair. I know that Kevin Warsh is interested.

I think Secretary Bessent’s name being thrown out is President Trump’s sort of palace intrigue way of keeping the two Kevins on their toes.

EICHER: Buried in the new tax-and-spending law is a surprising provision: so-called “Trump Accounts.” Surprised they didn’t call them Big Beautiful Baby Bonds. Starting this year, every newborn U.S. citizen gets $1,000 deposited into a federal investment account. What’s the thinking behind this, and could it make a meaningful impact on long-term investing habits? Do you want to comment on it?

BAHNSEN: I don’t really want to comment on it, but I’m going to because it’s important. It’s so disappointing to me that anyone on the right would be defending the idea of this sort of redistribution whereby we’re using taxpayer money—and of course, it is borrowed taxpayer money because of the debt situation—to go essentially give money to people, and then to say we’re going to do it for three years and then stop when President Trump’s term ends.

This is another one of these provisions where we’re scoring the cost based on what the law says, which is that it’s going to sunset in four years. I just want to know who believes they’re really going to let it sunset in four years.

George McGovern ran for president in 1972 on this idea that we would give everybody $1,000 when they were born. Richard Nixon pummeled him in that election. The right-wing argument against it at the time was the government shouldn’t be in the business of giving people other people’s money.

Now the argument for it is: by doing this, you’re getting all these extra years of compounding, and you’re going into the market, and you’re going to get much better returns than you’d get with something else.

This wasn’t written to replace Social Security. This is just another government program. I don’t particularly care for calling it Trump accounts. President Trump isn’t paying for this. We’re paying for it. The taxpayers are paying for it.

So it’s not a Trump account, it’s a taxpayer account.

This is an odd part of the legislation. It had support from a majority of Republican senators. I’ve talked with Senator Ted Cruz about this, and his defense of it is—even though I don’t believe the government should be in the business of doing it—this is going to cost less than other things will cost in the future because we’re getting the money into the market, getting a big return, and it’s an anti-poverty program that is going to be more useful in the future.

I think there’s merit, I should say, to some of those pragmatic arguments. But I just think as a matter of first principles, this is outside of the scope of government—and particularly federal government.

EICHER: All right, David Bahnsen is founder, managing partner, and chief investment officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thank you so much. We’ll see you next week.

BAHNSEN: Thanks so much, Nick.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.