# Fed Leadership Transition and Market Credibility Risks

**Podcast:** The Indicator from Planet Money
**Published:** 2026-02-02

## Transcript

NPR.
This is the indicator from Planet Money.
I'm Darien Woods.
And I'm Waylon Wong.
On Friday, we heard the long anticipated conclusion to what has been like the economics equivalent of the bachelor.
President Trump finally picked who he wanted to lead the U.S.
Central Bank, the Federal Reserve.
Yes, President Trump said he would nominate Kevin Walsh to lead the Fed.
Kevin Walsh started his career at Morgan Stanley.
Later he was a governor at the Fed during the Great Recession.
And if confirmed by the Senate, he'll start after the current Fed chair Jerome Powell's term expires in May.
Kevin Walsh would lead the Fed at a tempestuous time.
Yeah, Trump routinely bashing the outgoing Fed chair publicly was only the start.
He also tried to fire Fed Governor Lisa Cook, accusing her of mortgage fraud.
She denies this and has brought a case to the Supreme Court.
We've also had the Department of Justice subpoena the Fed over building renovation costs.
And that's not even taking into account what's happening in the actual economy.
The dollar sliding, elevated inflation, talks of a bubble in AI stocks, and money rushing to buy up precious metals.
The next Fed chair has his work cut out for him.
You know, what's happening with the organization, what's the landscape out there, and what policy options are at their disposal.
So today on the show, we're gonna do just that.
Our briefing to the incoming Fed chair.
Jerome Powell was asked last week what his advice to a new Fed chair would be.
He had a strong message.
Stay out of elected politics.
Don't get pulled into elected politics.
Don't do it.
And for our briefing to the incoming Fed chair, we gathered the views of three Fed watches.
They all have different perspectives on what matters for the Fed.
First is Skanda Armanouth, who runs the think tank Employee America.
That's a group who tries to support full employment and macroeconomic stability and looks for alternatives to using higher interest rates to fight inflation.
Skonder raises the big issue of the moment, which is the pressure to be loyal to the president.
I don't think it serves the interests of full employment if the Fed cannot have a credible impact on financial markets.
Skonder thinks Kevin Warsh is an unfortunate choice, noting his public remarks have been marked by, in his words, persistent obsequiousness towards President Trump.
Well, preservation of credibility, we are seeing a version of it erode.
Skonder points to longer-term interest rates.
These are interest rates that feed through into new mortgages.
And in the last few months, these longer-term interest rates have been going up.
That's even though the Federal Reserve has been cutting short-term interest rates.
Basically, even as the Fed has been trying to make it easier to borrow, the markets have been saying, no, actually, we want to make it harder for people to borrow for things like houses.
That suggests that investors think the Fed will need to raise interest rates higher, or are forecasting inflation will go up in the future.
Investors want more compensation for risk.
This should be kind of a a little bit of a warning sign that we're seeing the types of things that we would normally be concerned about associated with Fed independence being eroded.
So Skunda's message to the new Fed chair?
Central banks ultimately have their effect through some understanding that these policies are rooted in objective analysis, data dependence and objective evaluation.
In other words, Scanda wants the new Fed chair to look at the numbers, not the politics.
Following the numbers means the Fed will sometimes have to take unpopular action, like raise interest rates, which brings us to the next of our indicator advisors to the incoming Fed chair, Editya Bave.
Aditya is a senior US economist at Bank of America.
I think the biggest question for the next Fed chair is do rates need to even come down.
The Fed has been lowering interest rates for roughly a year and a half, with another two cuts expected this year.
Editia doesn't think that's needed.
Consumer spending on average has been strong.
GDP, that's been strong as well.
And financial markets are doing great.
The stock market is up significantly.
None of that suggests that the current policy rates are particularly, you know, imposing some restraint on the economy.
Some have called this a jobless boom.
Uh, what do you make of that?
Where there actually isn't a lot of hiring, uh, even though we've seen numbers like GDP output being quite high.
I think there's certainly some evidence of that.
Hiring has slowed down a lot, and yet GDP continues to grow.
There's a few reasons for that.
I think in terms of consumer spending, you see higher income folks probably feeling quite comfortable about spending in part because their wealth has increased in the stock market, and that's playing a part in this.
The other um thing that's really driving GDP growth is AI-related investment.
And that's not very labor-intensive.
So we're able to get that GDP growth without adding a lot of jobs.
So Aditsia's advice is stop cutting interest rates and look at maybe even raising them.
Now, this might come as a surprise to the many people feeling glum about the US economy.
It is spluttering for those on lower incomes.
They've seen their pay growth mostly eaten up by inflation.
Overall, though, Adidas says the US economy is running strong on average.
And Adidas says the Fed can only really affect what's happening in the economy on average.
Redistribution, moving money from one group to another is more of a job for Congress.
And knowing which branch of government is responsible for what is critical for an incoming Fed share.
Just ask Sarah Binder.
Sarah's a professor of political science at George Washington University and a senior fellow at the Brookings Institution.
She's the co-author of The Myth of Independence: How Congress Governs the Federal Reserve.
She quotes the Fed chair who held that position during the Great Recession.
Ben Bernanke, in his last press conference as chair, said Congress is our boss, right?
Crystallizing the importance of making sure you have Congress on your side, even as the Federal Reserve.
That's actually what Jerome Powell said last week, too.
They were both saying that Fed autonomy to sit into straights independently of politicians doesn't mean that the Fed can just do whatever it wants.
It's ultimately accountable to Congress.
And that explains Sarah's advice to the incoming Fed chair.
One issue that keeps coming up, despite the many efforts, I think, of this Fed under Chair Powell to address the question of the disclosure and the behavior of Fed officials in terms of trading stocks, bonds, and other financial disclosures.
Failure to follow the rules.
This is a big issue that Sarah thinks hasn't gotten the attention it deserves.
Like in August last year, that's when governor of the Federal Reserve Board, Adriana Kugler resigned.
The resignation was accompanied by a short press release with no details about why.
Then in November, it came to light that she had resigned because her husband had broken the rules around Fed officials trading.
There have been purchases of individual stocks.
That's not allowed.
And there have been purchases during the blackout period leading up to the Federal Reserve's decision day.
That's also not allowed.
Often it seems inadvertently violated the rules, but then are allowed to leave quietly.
This wasn't a one-off.
Fed Vice Chair Richard Clarider resigned in 2022 amidst a trading scandal the previous year.
Two regional Fed presidents also left their positions after controversial trading.
So addressing that, increasing confidence that the Fed has a tough set of rules, and having some consequences for violating the rules seems an important step for the Fed to address.
She thinks that would help the Fed have a stronger relationship with its boss, Congress, and its ultimate boss, us.
Yeah, don't forget that new Fed chair.
Now, if the nominated incoming chair would like to discuss these points in any further detail, call us.
Yeah, we have open office hours.
It was fact-jacked by Sierra Juarez.
Kekin Canada edits the show and The Indicator is a production of NPR.