SCOTT SIMON, HOST:
His termination cannot come fast enough, President Trump said of Federal Reserve Chairman Jerome Powell this week. Powell notes that the president cannot legally fire him over policy disagreements, but it's yet another sign of some of the tensions created by President Trump's tariff policy. We're joined now by Gillian Tett in New York. She's a columnist and member of the editorial board of The Financial Times and head of King's College, Cambridge. Thanks so much for being with us.
GILLIAN TETT: Delighted to be with you.
SIMON: Does President Trump have a point? Should the Fed be cutting interest rate at a time when markets are down?
TETT: Well, the first thing to say is that President Trump definitely does not have a point that he has the right to dictate monetary policy. There are some interpretations of the law which suggests that he can fire the heads of agencies, and the Federal Reserve is indeed an agency, but it's not clear-cut. And when it comes to trying to dictate the way that Powell does his job, he does not have the obvious legal power that undoubtedly will be tested at some point in courts. However, when it comes to the question of whether or not interest rates should be lower, the judgment call is extremely nasty because, on the one hand, you do have growth slowing down, but you also have inflationary pressures appearing to build. So it's not clear-cut either way, and I think given that, most Fed officials would assume the most rational thing to do would be to simply wait and see.
SIMON: European Central Bank cut rates for the third time this year. Why a different approach than in the U.S.?
TETT: Well, essentially, the European Central Bank is not facing the same level of inflationary pressures or homegrown policy uncertainty. And the reason why many Central Bank officials in the Federal Reserve system say, well, actually, it's premature to act now, is because we simply do not know what kind of tariffs are going to be imposed, how and when they'll be imposed, and what impact that will have on prices.
If the 145% tariffs on China are maintained and additional tariffs are slapped on other countries, we really could be seeing a very sharp jump in prices in the coming months, a bit like we saw during COVID. And in those circumstances, no central bank would want to cut rates. But if, of course, President Trump does a complete U-turn and removes the tariffs, then we're looking at a very different situation.
SIMON: Despite the fear of economic pain, do some European states see this as a moment of potential opportunity?
TETT: Certainly, there is a sense in Europe now that once they've got over the shock of the first, not even a hundred days of the Trump administration, many European states think that, firstly, that shock might force the European Union to wake up and implement reforms that frankly, it should have implemented a long time ago. And secondly, that insofar as the rest of the world is recoiling from what America is doing, there may be a chance for Europe to seem more attractive by default, both as an investment destination and a place to do business with more security and consistency of rules, and also, frankly, just as a place to live.
SIMON: How do you see the potential consequences of the trade war that seems to be going on between China and the U.S.?
TETT: I think the potential consequences of the trade war are extremely serious because firstly, the two systems are tied together economically in trade through supply chains in areas ranging from the apparel industry through to high tech sectors where it's completely impossible for any country to be self-sufficient in terms of chips and digital products right now. So ripping that apart is going to be extremely damaging. But on top of that, there's also the risk that ripping apart the financial links between the two countries will also hurt badly by reducing demand for treasuries, U.S. government bonds. And if demand falls, that will push up market interest rates, but also reducing funding for all kinds of American companies.
SIMON: You've written about the world economy for years. How do you feel we should view this moment?
TETT: At the moment, we're living through extreme uncertainty. You know, in some ways, it's resonant or reminds me of both the great financial crisis, where a financial system, which has seemed so stable, began to wobble and creak, or the COVID pandemic, when, of course, supply chains broke down completely amid extreme uncertainty then. But I'd also take a longer perspective and say what we're living through today is a bit like the kind of intellectual turning points we've seen before in the last hundred and fifty years. Before 1914, we had essentially an imperial model of capitalism. And then between the wars, we had protectionism and nationalism, and if you like, nationalist economics dominating.
Then, after World War II, we had Keynesian economics coming into play, which is all about the government trying to direct policies in a benign way. And then in the 1980s, we saw the rise of Reaganism and free market neoliberal ideas. What we're seeing now is, I think, in my view, another turning point, the rise of a more nationalist, protectionist tone in policymaking, the acceptance that government has a much bigger role to play in terms of directing how the economy goes going forward, and also rising pressures on companies to be more, quote, "patriotic" in terms of their own decision-making, too. And that's quite a different flavor intellectually for economic policymaking from what we've seen.
SIMON: Gillian Tett of the Financial Times, thanks so much.
TETT: Thank you very much, indeed, for having me on the show. Transcript provided by NPR, Copyright NPR.
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