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So, Kevin, do you think it's time for J. Powell to step down? I think it's time for him to go, to respect the independence of the Fed and overcome this partisan divide that is very visible in the system, and go back to what the Fed used to be. By the way, if you really want the institution to run efficiently and cheaply, let President Trump run it, but I don't think anyone is suggesting that.
So, the question for E. J. Anthony: is it time for Federal Reserve Chairman J. Powell to go? The Federal Reserve Board of Governors, and Jerome Powell in particular, have said they will wait for the criminal case to be concluded. The inspector general's report is out, it found some negligent management, but nothing that amounts to a crime.
Should he leave? He should 100% go, partly because he said so himself, right? He stated: "I will remain in office until this investigation is completed." And then he had to leave. Good. We are ready for you to leave. In fact, the country was ready for his resignation many years ago. They were ready for his departure when he kept rates too low for too long, causing a 40-year high in inflation, and then assured everyone, " Don't worry, rates will stay low." And then he began raising them at the fastest pace in 40 years, which ultimately led to a regional banking crisis in the spring of 2023.
It completely froze the housing market for years. Yes, it's time for him to go. It was time for him to go many years ago. The Federal Reserve determines monetary policy, a decision made by a vote of 12 members. Could we see the head being voted out in some of these situations? Currently, markets believe that there will be no rate hike at the next meeting , which will take place at the end of this month, but in December—possibly.
Could it happen that the board—and Jerome Powell is one of the voices on that board— overvotes the Fed chairman, and is that fair to the new administration? Well, that's definitely possible, isn't it? Mathematically, it's obvious, but it's of course unfair. I mean, think about it. He was put in office to be the chairman.
He has already been replaced as chairman. It's time for him to go. You know, as Larry and Kevin said , it would be equivalent to if the CEO of a company resigned or left the position, but somehow stayed and sat in the office next to the new CEO, trying to be a " shadow" CEO. This is essentially what he is trying to do at the Fed.
Powell is trying to be a shadow leader. Kevin Warsh is already there. The Fed is in safe hands with him. It was time for Powell to go. I, I want to involve you , Michael. 10-year yield. Treasury bond yields are affected by the actions of the Federal Reserve. The 10- year yield continues to rise. You know, you probably still dream about the yield prices from your old job at the Ministry of Finance.
You know, let me ask you this. Isn't part of the reason for rising yields the boom we're seeing in production and growth? We have investments that launch factories. These companies are entering the market with corporate bonds, and Treasury bonds now have to compete with them. Is this part of the success they are seeing from these pro-growth policies?
Yes, of course, because, after all, there is a certain amount of savings in the world that will compete for different investment options. We see AI companies building infrastructure on a massive scale to take advantage of this new technology that has the potential to significantly improve the lives of Americans, but this requires huge capital expenditures.
They borrow money to finance these investments, so this is one of the sources where global savings are directed. The second is the large budget deficits that not only the United States has, but also a number of developed countries around the world, where budget deficits significantly exceed sustainable levels.
You know, we just closed the fiscal year last week, and we're looking at another budget deficit of $1.8 trillion to $1.9 trillion, so Congress needs to get spending under control so we can reduce the pressure on interest rates. And finally, you know, growth will eventually make other investments, like stocks, attractive as well , which will also put pressure on yields.
So, a growing economy with inflation, and also an overly active Fed, which you and AJ were just talking about—all of that is driving up yields. So will you change your approach ? So how do you get those profitability numbers to start declining again? I think there are several factors here. First, the settlement of the situation in the Middle East and the increase in oil production through the Strait of Hormuz will put downward pressure on oil and gas prices, which will certainly help.
I think as WTI oil prices return to $80, we should see a decline in Treasury yields . But most importantly, in my opinion, Congress needs to prove that it is going to get spending under control. He has to prove that we won't have a $2 trillion budget deficit in the near future. And finally, we need the Fed to demonstrate that they will not change interest rates dramatically, and that when we see things like core inflation— excluding energy —at 2%, that this is not the environment in which to raise rates.
The reserve system does not have a scalpel, it only has a sledgehammer to slow down the economy on this issue. I want to ask you one more thing, AJ, to change the subject to the super-telescope that the president is talking about. Listen to Kevin Hassett. Jay Clayton has become, so to speak, the new " king" of artificial intelligence, or the king of superintelligence, and it seems he will lead this committee.
Can you give me 30, 40 or 50 seconds? What is this? What is this , Kevin, and what will it do? The bottom line is that these AI companies are moving fast, and we need to make sure they do it safely, but we also don't want to slow them down enough to allow China to win the AI or superintelligence race.
So, this balance: AI companies have signed a " constitution," if you will, certain guidelines to govern themselves. Is this enough, or should the government step in and introduce mandatory regulations? I am very hesitant about government intervention for several reasons. First, if we look at those who are actually calling for regulation, that says a lot, doesn't it?
Essentially, they want a kind of regulatory moat that won't let in any new startups, which they themselves were quite recently, but they don't want any additional competition. They want the government to actually preserve their market share. Another thing—there's already talk of these strange quasi-public- private partnerships , where they essentially want to do something like Fannie Mae or Freddie Mac: privatize the profits but socialize the losses.
In other words, put the responsibility on the taxpayers. This is the last thing we want. Therefore, I would prefer that the private market handle this on its own with minimal state intervention. Michael, can the private market handle it, or is this another “tobacco story” where they say everything is fine, everything is good, but in reality it is not?
I believe that the unique national intelligence issues surrounding the development of superintelligence require someone who understands the private sector—like former SEC Chairman Jay Clayton, who understands the need for functioning financial markets and economic growth, but also watches out for unique threats to national security , such as the development of bioterrorism weapons using such technologies.
He is a person who understands both of these aspects and will find the right balance. So I think this is a great choice for the president. It's interesting to watch how this story with artificial intelligence unfolds. Michael Funke, Attorney General Anthony, I am grateful to you. Thank you very much.
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