Inside Economics was fortunate to have Trump whisperer John Carney of Breitbart News join the podcast to provide his insight on the Trump administration’s efforts to rework government and reshape economic policy. Urban Institute scholar Jim Parrott helped guide the conversation. Listeners will get a wildly different perspective from that provided by Robert Reich of UC Berkeley on the podcast last week. Hopefully, these back-to-back podcasts on Trump’s policies help put things into clearer relief.
Inside Economics was fortunate to have Trump whisperer John Carney of Breitbart News join the podcast to provide his insight on the Trump administration’s efforts to rework government and reshape economic policy. Urban Institute scholar Jim Parrott helped guide the conversation. Listeners will get a wildly different perspective from that provided by Robert Reich of UC Berkeley on the podcast last week. Hopefully, these back-to-back podcasts on Trump’s policies help put things into clearer relief.
Guests: John Carney, Finance and Economics Editor at Breitbart & Jim Parrott, Nonresident Fellow at the Urban Institute
If you would like to read more, check out the resources below:
John Carney's Time to Put Tax Cuts on the Front Burner
Mark Zandi's U.S. Outlook: Wealth Effect
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics,
Cris deRitis – Deputy Chief Economist, Moody’s Analytics
Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Mark Zandi: Welcome to Inside Economics. I'm Mark Zandi, the Chief Economist of Moody's Analytics, and this is a special bonus podcast, but we'll get to that in a second. Let me bring in my two trusty co-hosts, Cris deRitis and Marisa DiNatale. Hi guys.
Marisa DiNatale: Hey, Mark.
Cris deRitis: Hey, Mark.
Mark Zandi: How's it going?
Cris deRitis: It feels special.
Mark Zandi: It's special. Special bonus podcast. Yeah. Good. Good. Before I got on, I saw that President Trump announced that the tariffs on China are going up another 10%, and I'm a little confused. They started off at 10, before President Trump's reelection. Now they're at 20. Now they're going to 30, I think, 30%. Is that right, Cris? Do I have that right? Do you know?
Cris deRitis: I'm also having trouble reading through.
Mark Zandi: Following? Okay.
Cris deRitis: Is it cumulative? Is it absolute?
Mark Zandi: Okay. We'll figure that out.
Cris deRitis: Not clear. And this just broke, right? So we need to-
Mark Zandi: Just broke. Yeah. And the tariffs on Canada and Mexico, that's the 25% tariffs, although I think they're 10% on Canadian energy imports and exports to the United States. I think that sounds like that's going through. And then he also made a comment about the EU, the European Union, and tariffs going up on the EU. So it feels like we're going down the tariff path here pretty fast.
Cris deRitis: That seems to be the case.
Mark Zandi: Yeah. And with that news, it's apropos to introduce our guests. We've got two. We've got John Carney. John is from Breitbart. Hey, John.
John Carney: Hi.
Mark Zandi: And you're the Finance and Economics Editor for Breitbart?
John Carney: That's right. I think it's officially Economics and Finance. I don't know which one.
Mark Zandi: Oh. I got it backwards. No. Well, hold on. You sent me an email. Did I get the email in your-
John Carney: Maybe I have it backwards. I'm not a big titles person. They asked me what I wanted to be called.
Mark Zandi: I'm just going to see. Oh. You're right. Sorry. No. No. Wait. It's Finance and Economics. Is that what you said?
John Carney: Yeah. If that's right?
Mark Zandi: Okay. All right.
Jim Parrott: Are you just trying to confuse him out of the gate? Is this some weird host dynamic?
Mark Zandi: Did I say Economics and Finance?
Cris deRitis: Who are you?
Mark Zandi: Did I say Economics?
John Carney: It should be Finance and Economics, because I started my life doing finance and I now write a lot about economics, so that works out.
Mark Zandi: Maybe it's just my biases, but I always start with economics. Economics number one, and then finance. And then finance. But okay. Finance and Economics Editor. Oh. And, Jim. I heard Jim Parrott's voice. Hey, Jim.
Jim Parrott: Hey guys. Thanks for having me back.
Mark Zandi: Yeah. It's good to have you back. Last time you were on, I was just thinking about this, was almost two, three years ago now, I think. And we were talking-
Jim Parrott: Is that right?
Mark Zandi: I think it's been that long. And the reason why I remember the podcast, is because it was my birthday and my wife slinked up. Do you remember this?
Jim Parrott: Yeah. I do. Yeah.
Mark Zandi: And put a little note in front of me. Do I want brownies or chocolate chip cookies or something for my birthday? Do you remember that?
Jim Parrott: Yeah. We're all guilted into saying happy birthday in public. I thought it was-
Mark Zandi: Yeah. That's right. That right. That's right. You were all guilted in saying that. Yeah. And of course everyone knows that Jim and I do a lot of research together. Been doing that for many years going back. I think Jim, all the way to the financial crisis, right? I think we've been-
Jim Parrott: [inaudible 00:03:50] Yeah. The first paper I ever wrote when I left the administration was Opening the Credit Box, so 2013. And that was your title idea, and I hated it because it felt like Pandora's box. It just seemed too evocative of opening a box you don't want to open. But I lost and it turned out you were right. Opening, that became a thing. Opening the Credit Box became a catchy meme before they were memes. But I was nervous about the title. But yeah, so it goes back to 2013. We go back.
Mark Zandi: It's funny you say that, because all the papers that we write, the only thing we argue about is the damn title. That seems like-
Jim Parrott: The most important part. When you lose half your audience after that.
Mark Zandi: We spent all our energy on the damn title. Nothing else matters, but
Jim Parrott: Well, John's titles are very racy too though. His are a little apocalyptic, or he's good with titles. I think he's got this-
John Carney: [inaudible 00:04:43]. Of one of the most depressing things we learned at the Wall Street Journal when I was there was how few people scroll. They'll read your headline, they'll read what shows up on the screen, but they don't push it at all. They just move on. By the time you get to the bottom of your story, it's like 5% of readers got that far.
Mark Zandi: Oh.
Jim Parrott: Yeah. So when I made it onto the front page of the New York Times with a terrible story by the Voldemort of journalists, who I won't name, Tim Ross Reed-style, nick, your old colleague at the journal, and as a consolation pointed that out. He said, "Well, you're fortunate, because you were the third bad guy in the story. And so you didn't come up until the last third. And so the percentage of people that would've gotten to the part where you're thrown under the bus is very low, so you shouldn't worry about it." That made me feel much better.
John Carney: I always have the theory that it's at the bottom of the stories where journalists hide the things that they really feel like should be in this story, but they don't want people to see. So it's all the way at the bottom. So you have to almost read them in reverse if you want to know what's really going on.
Mark Zandi: Interesting.
Cris deRitis: That is right.
Mark Zandi: But as everyone can tell, John and Jim go a long way back too. You guys have been talking for a long time, since John was at the Wall Street Journal. And John, you seem to know a lot of all kinds of stuff. This whole thing about the scrolling? And then you were telling us about McDonald's Happy Meals. What's the story there? You can actually ask for the little toy and they'll give it to you.
John Carney: Yeah. A lot of people buy the Happy Meals just to get the toys. The kids want the toys. But in my experience, if you really need one of those, a lot of times they come in sets. My own daughter really liked the Wizard of Oz and we couldn't get one of them. It was the witch, she needed the witch. And we wrote to McDonald's and they were like, "Oh sure. We'll send you the witch." So apparently you can-
Mark Zandi: Way to go.
John Carney: ... get the toys.
Mark Zandi: Very cool.
John Carney: I don't know if you told them, "I will never eat a hamburger. Please send me the toys," they might not send it to you. We were like, "We are loyal customers, please send ... " And they sent it to us.
Jim Parrott: Well, they Googled your name and then they saw the headlines that you throw around. So probably [inaudible 00:07:14] all of us have.
John Carney: Yeah. Except I was at the Wall Street Journal then, so maybe they were, "Uh-oh. We're going to end up on the front page of the Wall Street Journal with a bad story if we don't get them the toys. Get Carney the toys."
Mark Zandi: Hey, so John, tell us how did you go from the Journal to Breitbart and a little bit about Breitbart. And I should preface this by saying last week we had had Robert Reich on, former Labor Secretary under Clinton, and obviously a very strong critic of President Trump and his administration. And guys, I don't know about you, I thought it was a really good interview. But I thought it would be very good to have you on back to back with him, because of your different perspective on things. But maybe you can tell us a little bit about how you got to Breitbart and a little bit about Breitbart itself.
John Carney: Yeah. Sure. So actually I'm going to start even earlier. So I'm a lawyer. I went to Penn Law School. I practiced law at big New York City law firms. I started as an M&A lawyer. I became actually a leveraged finance lawyer, so I did like LBO deals. And around 2016, I was a little burnt out from that. Oh, sorry. 2006. Wow. I was a little burnt out from that. I left. I helped start a website called Deal Breaker, which was focused on Wall Street. I then helped turn what was Silicon Alley Insider into Business Insider, it's still around. And I then went to CNBC for a few years where I launched a website called NetNet and I did a lot of on-air reporting. Then I went to the Wall Street Journal. I worked originally on the Heard on the Street column, which was great fun. I mostly covered financial institutions.
I then became a general Wall Street columnist for the Wall Street Journal, again covering financial institutions mostly, but also trends in finance and what was developing not just in the institutions and how they were affecting the economy. And then when Donald Trump got elected the first time around, Breitbart was looking ... I had been a reader of Breitbart. I was very impressed. They were clearly onto something in that the rest of the world hadn't given Donald Trump a chance of winning the Republican nomination. They definitely didn't think he was going to win the election. Breitbart had.
So I was very curious about them. And they were looking to expand their coverage. They needed more people. They wanted to hire somebody who could write about finance and economics. And I was covering the banks at that time, and one of my thoughts was the action had been in banking. We had the financial crisis. I was right there writing about that the whole time. Then we had Dodd-Frank. There was a lot going on with banks for the eight years following the financial crisis. But I really thought, "Okay. The action is going to move now. Donald Trump's coming in. We're going to have tariffs. Brand new things going on. Can I do that where I am? No. Not really." I was the Wall Street columnist for the Wall Street Journal, which was again, super cool title to have.
So when Breitbart came calling, I was like, "This is an opportunity to do something new and we'll see how it goes," and it was terrific. I had a ball, it was really fun. I got to, like I said, expand what I got to write about. And we started putting out a product called Breitbart Business Digest, which is one of the favorite things I do every weekday. Except on bank holidays I take off if the market's closed, because really it's just an excuse for me to just take a day off. I probably could do it anyway, but it comes out every day, it's free. It's newsletter, it comes to people's mailbox emails and we cover everything. Yesterday I did companies abandoning their DEI pledges.
Mark Zandi: I saw that.
John Carney: The day before that I did tariffs and I do taxes and budget. I do even stuff like people's shopping habits changing. Two years ago I wrote a lot about how economists and Wall Street analysts were getting stuff wrong when they were like. "Oh, September shopping was really strong, and now December shopping will be even stronger, because it always builds." But they were wrong, because everybody had moved their shopping to earlier in the year. So in other words, I just get to do a little bit of everything, which is really fun.
Mark Zandi: Very cool. Well, thanks so much for coming on. And Jim says you're a bit of a Trump whisperer. Is that right?
John Carney: I like to think that I do ... I have a lot of contacts in the administration and so to go even further, back when I was a very young man, I worked for Pat Buchanan's presidential campaign.
Mark Zandi: Ah. Okay.
John Carney: I helped do research for his speeches, for his books. And Pat was in very many ways like the Paleo Trump, like the Proto Trump. A lot of the ideas that are now actually coming out of the White House, some version of them were coming out of the Buchanan campaign back in the 1990s and 2000. So I understand the economics in a way, and I think I'm pretty good at explaining it to people who don't necessarily understand it. So one of the things I do look at, as my mission is, a lot of people I think have trouble seeing things. Things seem crazy to them or they have trouble seeing things from the point of view of what Trump is doing. And a lot of the mainstream media is actually pretty bad at trying to figure it out. If you open the New York Times and you try to say, "Well, what do the Trump people think about this? What does Scott Bessent ... ? How does he approach it? Stephen Miran, how does he approach it? Kevin Haskell? Kevin's a little more traditional, but-
Mark Zandi: I get Kevin. I get Kevin. Just saying, I get Kevin-
John Carney: But the other guys I think people don't get. And so I get them, and so I think I do a pretty good job. So that is also part of the mission of Breitbart Business Digest, is to try to explain to people, here's how to think about this stuff and how the people inside the administration are thinking about it and try to make sense of it. You don't have to agree with it, but I think it always helps to understand why are people ... ? Why do they think that things they do? Why do they think it means? How do they think tariffs work?, I think is important to understand even if you don't ultimately say, "Yeah. No. I agree with that." You could say, "I disagree," but at least you understand what you're disagreeing with.
Mark Zandi: Got it. It reminds me of, you ever see that movie Being John Malkovich? You ever see that?
John Carney: Love that movie.
Mark Zandi: I love that movie. Who's the star in that movie? I can't remember the name.
Jim Parrott: Malkovich.
Mark Zandi: Right. Jim, I'm going to turn this over to you and maybe lead the way here a little bit, because I know you're a John Carney whisperer. So Carney knows Trump-
Jim Parrott: It takes a village.
Mark Zandi: ... and you know John, because you indicated to me that you guys have these conversations where whenever you're confused, you will call John up and say, "Hey, John. Can you explain this to me?"
John Carney: I should charge Jim for that.
Mark Zandi: Yeah. You should. You should.
John Carney: Personal newsletter service. Yeah.
Mark Zandi: But let me hand it over to you, because there's a lot to be confused about, at least from my perspective. And maybe take over here.
Jim Parrott: Yeah. One of the reasons why I thought you would be really good on this podcast is very much what you, John, just said, which is there is an enormous amount of confusion outside of Magaland about what the big picture is here, what the strategy is. It just feels like a lot of chaotic noise, and it's like the cat running around after the flashing light thing. And it's a little hard to make sense of. And so you're the best person I've run across to explain these things when I get confused about what sense to make of what's going on in the administration. And so where I thought we might start is, there's been a ton of angst and confusion over the movement against the agencies, the different federal agencies.
So we start out with an attempt to basically freeze funding or spending out of various agencies. Then you've got a pretty aggressive move to fire large numbers of folks at agencies. The courts have gummed this up a little bit, but those are the opening moves. And so the opening moves felt like just a giant cost-cutting exercise, which I thought I understood. But then accompanying that, not long after those opening moves, you had a pretty aggressive move to consolidate power within the executive branch.
And so the cutting off of spending at the agencies felt like a power grab away from Congress, in effect, to the executive branch, a pushback on the Impoundment Control Act. And then there was, more recently, a move to really pull power back from the independent agencies by forcing them to run their regulatory decision-making through OMB, taking away some of their independence in the past. So what began to feel like a cost-cutting exercise seems now to feel much more like a pretty radical restructuring of how the government operates. Is that the right way to think about it? Is that the right way to connect the dots?
John Carney: Yeah. No. It is a radical rethinking about how the government works. I will say, I don't think it's about consolidation of power within the executive branch, because are all within the executive branch. So the executive branch has all of this power. The question is, who controls the agencies that are executive branch agencies? And there's both a theoretical background to this, and I'll say a personal background. The personal background for Donald Trump is that he feels like he completely failed to get control of the executive branch when he was president, that large parts of the US government were working against his policies. And you can see this when you read the books that people who worked for him wrote. They confess like ... Gary Cohn says he hid papers from the US president. So they would go to his desk and take documents off, so that they wouldn't get signed. So there were huge parts-
Mark Zandi: [inaudible 00:18:38] This is a quick point. He was the first chief of staff, wasn't he?
John Carney: No-
Cris deRitis: No. Gary Cohn's NEC.
Mark Zandi: Oh. He was NEC, the head of the National Economic ... Yeah. That's right.
John Carney: Yes. And people would tell Trump things that weren't true. I don't want to pick on Gary Cohn. But there were large parts of the government were clearly, just felt like they didn't need to do what the president was telling them. So one of the things that happened when Donald Trump left office was, and all the people around him said, "Let's not make that mistake again. Let's not assume that just because we hold the White House, that the rest of the government will do what we say." Now, this is a unique problem that Donald Trump had. Joe Biden did not have this problem. Barack Obama did not have this problem. George Bush didn't have this problem. Bill Clinton didn't have the problem. George Bush Senior didn't have the problem. Ronald Reagan maybe had it very early on, actually. They didn't have the government basically refusing to obey executive orders, just to not follow the agenda of the president. So they came in this time with a very clear directive to not let that happen again. So that's part of it.
The other part is more almost lawyerly, which is the theory of the unitary executive that has been hatched in the Federalist Society and brewing up for years in conservative legal circles, which is that all of these agencies, everybody, works for the US president. And you've seen this in decisions from the Supreme Court, where they say you cannot establish independent single director agencies. They have to be removed. You can't say that they're only removable for cause. They have to be removable at will by the US president. And so the court has backed this up. A lot of people in the administration really strongly believe the idea that if you're the Department of Justice, you work for the US president. If you are USAID, you work for the US President. Congress can appropriate money, but the President executes the laws and executes the spending of that. So those are the two pillars of what's going on. And then with the funding thing, there's an even-
Mark Zandi: Can I ask John really quickly just to make that concrete. Does that mean that Trump believes that he should have control over the Federal Reserve Board's interest rate policy? The Federal Reserve is an agency part of the executive branch, if you just take an extension of what you just said. Yeah. He would say, "Yeah. I should be able to control interest rate policy." Does he believe that? Do you think he believe that?
John Carney: No.
Mark Zandi: No?
John Carney: And that is super interesting, because you do see a lot of people actually saying, "Oh no." That's the end game where they fear things will go like, "Oh. He controls the FHFA now. Will he control the Fed someday? And he controls CFPB. Does that mean the president gets a control it?" No. The reason is, because the US Constitution actually says Congress has control of the creation of money and the assignment of value. So the Fed's monetary policy is actually a legislative function according to the US Constitution, which is very different from what most of the agencies are doing. They are exercising executive power. The Fed arguably is actually ... Even though a lot of people think it's an agency like the other agencies, it's probably formally best thought of as a super committee of Congress, that Congress has delegated the responsibility of monetary policy that the Constitution assigns to it, to a little congressional committee, like the Congressional Budget office in a way, right? The Fed is that, but for monetary policy.
But there are functions of the Fed that the president probably does have to control. So the Chair for Supervision, that's an executive function. Supervising banks is an executive function. So the question would be, could the president remove the Chair for Supervision? We don't know. The law says no he can't. He serves a term, he's removable for cause. But every Chair for Supervision has stepped down when he is no longer serving at the pleasure of the president, including Michael Barr just recently. Donald Trump came in ...
So I think that's great, by the way. I don't think it's great to maximally test the legal theories of the Constitution all the time. It's much better if you're like, "Okay. I'm out of sync with the president's view. I'm not going to make him fire me and cause a crisis and go to the Supreme Court. I'll step down." But I don't think Trump would try to do that to Jerome Powell. And he's actually been pretty explicit when he says, "I think I should be able to say what I think monetary policy should be. I think I should be able to say that they're wrong when I think they've made a mistake. But I'm not going to tell them what to do. They're going to do what they want to do. And I'm the President of the United States, and I'll voice my opinion."
Jim Parrott: If you look at the executive order in which the White House says all independent agency decision-making needs to run through OMB, they carve out monetary policy from the Fed's order. So the Fed's included in executive order, but only in its regulatory functions, not on its monetary. So they're pretty explicit. If you read the order, consistent with what you just said, it's clear their theory is all encompassing within the executive branch, including independent agencies on the regulatory side. But they've got this carve out for monetary policy for the Fed, which John just mentioned. So it's interesting.
John Carney: Yeah. There is an argument that Congress actually has delegated too much power to the Fed that perhaps they're not allowed to delegate that much power. But the solution to that, actually, wouldn't be that the president gets to be in charge of it. I don't think they could actually make the president in charge of monetary policy. The Constitution assigns it to Congress, so it's got to stay in some way with Congress. And perhaps the Fed was originally unconstitutional, but the 1970s reforms, which created the dual mandate actually create what the Supreme Court calls an "intelligible" principle, which means that there is a direction that the Fed is required to follow, set by Congress.
So it's not actually that independent. Congress has created them. Congress has said, "Here is what you must do, pursue maximum employment and price stability," and the Fed operates within that framework. That may constitutionally save the Fed, make it an acceptable delegation of congressional power. And as I said, even if that was wrong, if a court decided somehow, "No. They've delegated too much authority, the Congress has to set monetary policy more directly," it would be Congress doing it, not the president. And like you said, I think the people in the Office of Legal Counsel and in the White House now agree with what I'm saying on this.
Mark Zandi: Yeah. I don't want to belabor the point. I do want to get back to impoundment, because that's also a really critical issue. But when you say the president can opine about interest rates ... So let's just say it feels like we got tariffs, inflation's kicking in, inflation expectations are up. These are things the Fed looks at and they say, "Hey? By my playbook, the playbook I've been following since the beginning of time, that says no rate cuts and maybe a rate increase." Of course, president Trump may take exception to that and probably would. And then starts opining publicly about, "Oh. The Fed should be cutting interest rates, not raising rates." Don't you think that's interfering with the Fed's independence at that point?
John Carney: No.
Mark Zandi: He's the President of the United States talking to a part of the executive branch. He's saying, "I want lower rates, guys." You don't feel like that's going to impinge on their independence?
John Carney: Now, Reagan, for instance, was very critical of the Fed. This has been swept into the dustbin of history, I guess. But people don't remember that Ronald Reagan's people actually really worried that Paul Volcker was going to crush the economy, which it did happen. And that was going to undermine support for Reaganomics. They were trying to get the economy going with their tax cuts, and instead we kept falling into a recession, because interest rates were so hot. And Reagan, not just Reagan, but Reagan's people as well were very, very critical. Later on, everybody wanted to pretend that didn't happen, because everybody agreed that, "Oh. It was a good thing. They crushed inflation." But you can look it up. It's in the history books.
Mark Zandi: Yeah. Yeah. Yeah. I didn't know that. Yeah.
John Carney: It's in the archives. And when Trump spoke in Davos or to Davos, I guess. He didn't go there, but when he had his Zoom call to Davos, he said, "When inflation comes down, I will demand that the Fed cut right away." He made it very contingent. That got misreported, because the headlines said, "Trump demands." "Trump says he will demand the Fed cut." But he actually, and his economic advisors certainly realized that inflation basically undid the Biden presidency, and is the biggest threat to the Trump presidency. He has inherited a high level of inflation. If inflation continues at a high level or gets much worse, that will be very bad for everything Donald Trump wants to do. Bad for the Republican Party, bad for whoever comes next, JD Vance's chances to win in 2028. So I do not expect that if there is a rising price level, or a rapidly accelerating rise in price level, that Donald Trump will be demanding cuts from the Fed. The last time around we had very low inflation and he-
Mark Zandi: [inaudible 00:29:42] Yeah. I don't know. The point is that whether he's in agreement or not agreement, the point is that he's weighing in on it. And the way he weighs in on things, he weighs in heavily on things.
John Carney: Although again-
Mark Zandi: I'm not sure it's going to be Ronald Reagan-esque the way he weighs in.
John Carney: Well, like we were saying in the beginning-
Mark Zandi: And it's about perception, John, isn't it? It's about what global investors think. That's what matters. It doesn't matter what Trump is actually saying, it's how they interpret it to what he's saying. And if they think, "Oh. He's going to impinge on the independence of the Fed," that has implications, real-life implications on interest rates and everything else.
John Carney: Yeah. I don't think people think that he's going to do that-
Mark Zandi: Okay.
John Carney: One, because he didn't. He was really mad the last time around when they were raising rates right after he got elected. The Fed started hiking after 10 years of zero, they started raising rates right after he got elected and kept raising so much so that later on the Fed basically admitted they were wrong. They should not have kept raising as long as they did. But Trump didn't interfere. And also one of the things we were talking about earlier is vast parts of the US government seem to think that they can ignore Donald Trump. They get an email that says, "Tell me five things you did last week," and half of the federal employees are like, "Nah. Definitely not going to send you an email about that." So if Trump can't get-
Mark Zandi: I can tell you if the Moody CEO sent me an email like that, I'd say, "Nah. I'm not responding to that." I assure you. I assure you I would not, because ... I mean, come on. Really?
John Carney: Well, my point here, though, is that if Trump can't get USAID to carry out Trumpian policies, why would anybody fear that Jerome Powell is going to cave to Donald Trump? Right?
Jim Parrott: You know what's funny about this, though, is that argument's probably much stronger in a Jerome Powell world, because we've come to believe the guy's got a backbone. And so in a dynamic in which Trump is banging on the pulpit as it were, and yelling about interest rates, I can envision Powell being very statesmanlike and pushing back in his Fed-like, unintelligible way, that those of us who understand Fed-speak see as being statesmanlike. But I could also imagine Powell eventually being succeeded by somebody who's not like that, and who does respond much more quickly to Trump for whatever reasons. And then you've got a tricky ... I don't know what that outcome is, but I can imagine a world in which Trump puts somebody in who is more malleable to Trump's liking, and then the dynamic is different. He bangs in the bully pulpit. The other person moves for whatever the reasons. The market's going to view that differently. I feel better about all this in a Powell world than I would in perhaps a Powell-successor world, I guess.
John Carney: Well, so that's actually super interesting, because I've thought about this a lot, because his term is going to up halfway through Donald Trump-
Mark Zandi: March '26, right?
John Carney: Yeah.
Mark Zandi: 2026. Yeah.
John Carney: So he will be replaced. Donald Trump is not going to reappoint him.
Mark Zandi: Really? That's definitely news.
John Carney: He's not going to reappoint him. So what happens? Well, interestingly enough, and this is weird I will say, the people who people talk about being the next chairman under a Republican president are all uber hawks. They are people who really worry about inflation. They were super critical of the Fed's cuts. A lot of them think that QE went on too long. A lot of them think the Fed kept interest rates too low for too long. A lot of them said things that turned out to be really wrong, that during the post-financial crisis that QE was going to cause massive inflation, all of those things. But these people are pretty hawkish.
So I don't know what Trump does with that, to be honest. Does he find a guy who wants to have ... And Trump is not a hawk. He is somebody who likes low interest rates, maybe because he's been such a huge debtor in his life. That's his instinct is like, "I borrow money. I want it to be at a low rate. I'm now in charge of the federal government. I want to borrow at low rates. So I want the Fed to have a low rate policy." That may be what's going on, but does he have somebody lined up to do that? I don't think he does. And then the other thing is, by the time Powell resigns, by the time his term is up, Trump will be on his way out. He will have two more years of his presidency, almost a lame duck.
I'm not sure that the next chairman who will be in there for four years will actually be that worried about Donald Trump, right? Even if he was somebody who might really love Donald Trump, could Donald Trump push him around? Probably not. And because he would say, "Well, I got to really worry about what happens next." And that might be a Democratic president, it might be a Republican president. We may have a Democratic Congress at that point. Midterms don't often go well for the party in charge. So I'm not that worried about the next guy either, because I just don't see the scenario.
I'm actually more worried that Donald Trump actually appoints somebody who is an uber hawk and then is really, really upset about it, right? It's like, "What did I do? The slightest whiff of inflation, these guys are jacking up interest rates. I thought that was my guy." He might be really upset about it, but there'll be nothing he can do, because again, that is a legislative function. I think the chairman of the Fed is actually a pretty safe position, and I don't think ... I know this. They have been told by the Office of Legal Counsel that you probably cannot remove the chairman of the Fed.
So they know that while they can kick out the heads of every other executive agency, and at least anyone that's run by a single director ... That's the other thing. The Fed is also run by a board. Even though we all talk about the chairman, the board actually also helps it be more constitutionally appropriate in the Supreme Court's view. But they know they can't remove the chairman. I actually was more skeptical than they were, to be honest. I had to be talked into the position that you can't remove the chairman. But that's how they see it.
Mark Zandi: Well, we got so much to talk about and so little time, you got to come back. But there's a bunch of questions I've got. Let's first talk about impoundment a little bit, because that is really critical with regard to the separation of power between the executive and legislative branch. I also want to talk about what seems, from my perspective, and I think others, the drama and chaos that is coming from everything that's being thrown out there on policy. There's a lot going on, and get your comments and feelings about that. And I also want to get an understanding of, do you think there's any guardrails here on what the president might do? And we'll come back to it, but my thought has always been that he's very sensitive to the economy's performance, the stock market, and probably now the bond market. And that if he's getting signals from those places that things aren't going in the way he thinks ... By the way, I think tariffs are a really bad idea. Broad-based tariffs are a really bad idea.
John Carney: I'm familiar with your reviews on tariffs.
Mark Zandi: Yeah. I hope I'm wrong, but I'm going to be right. And the question is, when will President Trump see that and will he react to it? But let's come back to that. So that's where I want to go in the time we have. So just so we know, because we're all going to run out of time here. So impoundment. Jim, you want to explain impoundment and-
Jim Parrott: Oh yeah. Sure. So there was a law passed in the mid-seventies, 1974 I think, that effectively says that executive branch has to spend the money that Congress is appropriated for the executive branch to spend. Because up until that point, the presidents prior to that act had felt that they had some flexibility and that basically appropriation set a ceiling, not a floor for what executive branch was to spend. And so, in some cases, in this case, Nixon decided, thanks, but no thanks. There's some programs I don't want to fund at the level you funded, so I'm not going to.
Congress didn't like this. They passed this law that requires on the terms of the law, the president to spend what Congress has appropriated. And so the question then, and I'll turn it over to John ... The question then is by freezing funding at the agencies, if it seems temporary, then perhaps it's not an Impoundment Control Act problem. But if it feels like you're telling them, "Do not spend this money that Congress has appropriated," it seems like a violation of the Impoundment Control Act, raising the question of what's going on? Why are they doing this? What's the long game? And so John, you want to take it from there?
John Carney: Yeah. No. That's really good. Yeah. Nixon, by the way, he was almost the maestro of impoundment. He just impounded everything he could get his hands on. That's probably why Congress changed the law, because they were pretty upset about ... Plus Congress was feeling very uppity in the Watergate era, right? They were like, "Okay. We're going to really get into this and we're going to tell ... " That's where the Fed reforms came from, the Humphrey Hawkins Act, the and the Impoundment Control Act. So a couple of things are going on there. One, there's very influential people in the administration believe that the Impoundment Control Act is unconstitutional, that the Congress cannot tell the president he must spend funds. They can appropriate funds, but it is up to the US president to do it.
And you can come up with a lot of scenarios where it's actually impossible for the President to do something. So let's say Congress creates a subsidy for a certain type of solar panel. And it's a grant, and you have to apply for the grant. And so the Department of Energy writes down the criteria for who can get the grant. And they put out the request for proposals and people send in their grant request, but nobody qualifies. Does the president have to spend the money that Congress appropriated, if nobody qualifies? What if nobody even applies? Does the president have to spend the money if nobody even applies for the money? That's absurd. Clearly not.
So at least in some cases, the president can say, "No. I am not going to spend this money." The President probably does have to carry out the program that Congress has put in place, but if he can do it for less money ... For instance, let's say, Congress appropriates $1 billion to build electric vehicle chargers around the country. And Elon Musk figures that out, "You know what? We could do it for $500 million," and they build all of the ones that ... There's no more chargers to build. They're everywhere. Is the president violating the law if he has accomplished the goal of Congress, but not spent all the money? Probably not.
And certainly as a matter of constitutional law, it has been a theory among conservatives for quite some time that, at least in the extreme cases, the law is unconstitutional. And so I think one of the things we're seeing is they're lining up tests for this. So first they're going to try to defund things that Congress hasn't directly appropriated. So USAID was one of those, where Congress actually didn't create it, it was created through executive order. I forget actually whether USAID is one that gets direct congressional appropriation. Anyway, so the point is what they want to do is actually take some of these cases and test them. They think they're right. They think that the Supreme Court is going to side with them.
They know they will be sued. All of these lawsuits, all of these district court judges that are issuing nationwide bans on parts of the government following Donald Trump's orders, this was absolutely in the plan. They knew that they would be blocked everywhere and at every point. And they said, "That's great because we are going to bring this to the Supreme Court and we're going to win." They actually think they're not only going to win that they think they're going to get the judiciary to rein in the judiciary. They think that the Supreme Court is going to tell all of these judges that, "you may not issue a nationwide ban. If you are a district judge, you could ban something in your district, but a nationwide ban has to come from at least an appeals court or probably the Supreme Court." and they'll probably win that as well.
Jim Parrott: So play this out for me. So let's say they run the table on all this. So let's say that ultimately once the judicial dust settles, whenever that is. They've knocked out the Impoundment Control Act, and so now the executive branch has control over what programs it wants to fund and what it doesn't want to fund. They run the table on their ability to fire employees and compromise the independence of the independent agencies by running it through OMB. So they succeed in all of that. So now much power shifts, not just let's say at branch executive branch, but to your point, to the White House within the executive branch, what's the ideal governing ... ? What do you do with that new finely tuned, I guess, more narrowly targeted structure of power in the executive branch? Where do they go with this?
John Carney: Well, so one thing I want to just add, and then I'll try to answer this, is interestingly enough, the conservatives on the Supreme Court actually weakened executive power through their Chevron decision. So they used to defer to what these agencies were doing. Now they're saying, "No. We're not going to." So that's actually pulling in a different way. And I think it's important to keep in mind, because Donald Trump cannot say, "I interpret this law to mean this, and therefore ... And the judiciary will defer to my view on that because of Chevron." He doesn't have that armor anymore. Chevron armor for agency decisions is gone. So even though power may be, I would say democratized, right? It is being given back into control of somebody who gets elected by the United States people, there is a stronger check on it than there has been in 40 years, because the judiciary will no longer defer in statutory interpretations. So it's not as much power as people think, if you put Chevron together with the unitary-
Jim Parrott: And just quickly Chevron for those folks who are in-
John Carney: [inaudible 00:45:47] I'm sorry.
Jim Parrott: No. That's all right.
John Carney: Lawyers. Jim and I are lawyers. So-
Jim Parrott: Yeah. Right. So Chevron. Prior to this decision, there was a long tradition and judicial support for a great deal of deference to executive branch agencies deciding how to interpret ambiguous congressional mandates. So if they got a rule that said, "DOE, you've got to do X, Y and Z," and there were multiple ways in which you can interpret what that meant, the courts largely deferred to the agency to decide how to figure that out. Recently the Supreme Court weighed in and said, "No. If it's ambiguous, the court gets to figure that out, not the agency."
And it's a pretty significant, as John put it, retrenchment of power back into, really, Congress, because now Congress is going to have to take all those ambiguous areas where now it's going to get locked up in the courts over whether or not the agency's supposed to do X or Y, because it's not clear. So now it's going to get kicked back to Congress to ultimately clean all that up, so that the agencies have some more clarity about what they're supposed to do. Notably, we're doing this in a time when Congress can't tie its shoes. So it'll be interesting to see how effective all that works. But yeah. To John's point, that does cut the other way in this whole consolidation of power argument.
Mark Zandi: So John, though, just to complete the conversation around impoundment, you went to the extreme to make your point. Let's go to the other extreme. What's the role of Congress then?
John Carney: So what the President can't do is say ... So Congress says, "Okay. We are going to provide funds for the Mississippi River floods." and Congress votes that they're going to do it. What the President can't do is say, "No. I'm not going to help the Mississippi flood victims."
Mark Zandi: But when Congress appropriates 25 billion for that, he could say, "I'm going to only spend five."
John Carney: Yes.
Mark Zandi: Or I could spend $1 of that.
John Carney: No. Because I do think the courts will say, no. Congress may have to get very explicit about this, right? "We are appropriating these funds and we are going to tell you what you need to do with them. You have to accomplish the mission to the extent you can with the funds we have." And then without the Impoundment Act, the President would at least have to show that he did everything he could to accomplish his goals-
Mark Zandi: [inaudible 00:48:29]. Okay. So the way to square this circle might be just legislation, the way legislation is written. And this goes back to the Chevron case. It's just got to be more, "You guys, there's no gray area here. You got to give me the black and the white."
John Carney: [inaudible 00:48:43]. And the courts have been saying, particularly the conservatives on the courts, have been saying this for years, that Congress has basically fumbled its job, that they write these statutes and that the way that Chevron and that stuff was actually encouraging that. And perhaps the Impoundment Control Act was encouraging that as well. They could just do vague things, say, "Spend this much and figure it out." Now, Congress will probably have to be more precise about it, and I think that's probably good. One of the reasons Congress may not be all that confident, is because they haven't had to be. And so to the extent they do, I think that could be actually an improvement in the governing system.
By the way, I just want to point out that everybody right now is looking at this through the Trump lens. They're saying, "Oh. What if Trump doesn't do it?" Let's say we have Kamala Harris as our president and a Republican Congress says, "Build the wall. Here is $50 billion." Does Kamala Harris have to spend the 50 billion? Not if the Impoundment Control Act has gone. She will have to build something, but she will not have to spend $50 billion. So conservatives should probably also be prepared for the fact that if we get rid of the Impoundment Control Act, this will become a power that democratic presidents will be able to use as well. And Democrats should also realize, "Okay. Yeah. I might not like Donald Trump doing it, but man, I'm going to love it when we get to turn down spending on this nonsense. Congress could appropriate defense spending that we don't have to spend. We have to defend the country, but we don't have to do ... " There's a lot of things where it can go both ways.
Mark Zandi: Got it.
Jim Parrott: What this does is, if they run the table on all these legal cases, by taking us to almost a more UK-like governance structure, where power is consolidated enough where whoever has won the White House can toggle the HUD spending switches up or down in whatever way they want. And the pendulum will swing politically in a way that will flow through to policy, in a way that it hasn't in a long time. If you don't like block grants, we won't have block grants for the next four years. If you don't like Section eight? So in whatever the other version swing the other way would be as well. So it does seem like it makes the White House part of the executive branch a more powerful instrument, but that can cut either way.
John Carney: Maybe it increases voter turnout, right? We are really increasing the stakes of democratic elections. And I think actually that's kind of what people want. At least that's the Trump populist theory of it, that that's what people voted for. Not just for Donald Trump, but for more popular control of the US government.
Mark Zandi: Cris, you want to weigh in?
Cris deRitis: I'm just curious, does this open us up for more impeachable offenses? Going down the UK model, is this more of a non-confidence, no confidence votes? If the president is now not spending fully, but ... There's that debate about, did he make a good faith effort? Or did she?
John Carney: Yeah. I think that's actually right. And the Supreme Court has said that a bunch of times. Like, "Oh, okay. Well, if Congress thinks that the president is violating the law by not spending money, by not carrying out its wishes, it's probably not the job of the judiciary to say, "No. We're going to force you to spend the money." It's the job of the legislature to say, "You've broken the law." Now is that a high crime and misdemeanor? Maybe it has to be a really, really egregious thing-
Jim Parrott: [inaudible 00:52:46] Like shutting down an agency maybe?
John Carney: I guess that depends on your view of shutting down agencies. But sure. I do think it raises the possibility of impeachment fights over policy in a way that we haven't seen for a long time. But we did see that, by the way, in the post-Civil war era. It has happened before.
Mark Zandi: We're running out of time. And if you're game, I'd love to have you back, you and Jim back to continue the conversation because so much, and it changes hourly. But let me just tee this last bit up with the following. A lot of economic policies being made very quickly. Tariffs, immigration policy, tax spending policy. We just talked about regulation, fed independence, Doge cuts. I'm having a hard time keeping it up. There's so much stuff I can't even list all the stuff that is going on. It's definitely creating uncertainty out there. There's a lot of uncertainty. Just take the tariffs. Are they on? Are they off? Which countries? Which products? Over what period of time? And you can see then the uncertainty measures, the NFIB small business organization survey. You can feel it's having impact on the economy. It feels like the economy's getting softer here. People are getting cautious. You can feel it in the equity market. Now maybe I'm reading too much into the recent day's action.
John Carney: I think that's right. I think we see a lot of softening.
Mark Zandi: Okay. So is the president focused on these things? Will he change his mind? Will he pivot? Like, in our forecast, let me just be frank. In our forecast, and I'll take tariffs as the example, we have tariffs going from effective tariff rate going from 3%. That's where we were before President Trump's second term to a little over 10% over the course of the year. And then we have the tariffs coming right back in for the most part, except on China, by the end of '26 into '27, because in our view, in our modeling ... And this is just very standard stuff from a macroeconomic perspective, tariffs are bad for growth. And especially if you have retaliation. And we're assuming the president responds to that weakening in growth and the poor performance and the impacts on the equity market, and that's why the tariffs come in. We don't go into recession, the economy continues to go forward. But it all depends on the president's being responsive to what's going on. So I just said a lot. What do you think?
John Carney: So I think that's not an unreasonable projection, but I would actually ... The causation is what ... I don't think we will get a lot of retaliation. I actually think, particularly now that Trump has said he wants to do reciprocal tariffs ... I think that this will actually cause a lowering of tariffs across the world, and that we will see ... Except with China, because most countries probably can lower their tariffs and do very well. China's system is very different and requires them to run giant surpluses against the world. So they will have a very different problem. And so I think you're right about that as well. So what I see is tariffs going up the world replying to this by saying, "Okay. Well, we have the secret formula to get Donald Trump to take away those tariffs.
"How do we make sure we continue to have access to the US market? But we have to overcome internal special interests who are the ones who are demanding the tariffs," that probably are not very helpful to their economies. "But now that we are being hurt by tariffs, because we can't export to the US without paying them, then we have the problem. Then we have enough political power now and an economic excuse to lower our own tariffs." So Donald Trump is actually empowering free traders around the world to get rid of their tariffs in response to his terms. So I see it as not retaliation, but as reciprocal lowering. And I think that's where this goes. But that actually ends up, puts us on the same place, interestingly. You and I would then project the same thing. Tariffs go up and then they come down. It's just the causal mechanism is different.
Mark Zandi: Oh. It's not caused by a weak in the economy, you're saying? The economy's going to be fine?
John Carney: Yeah. I think the economy will be fine. I disagree. I do think that tariffs can be used to actually increase national income. I don't want to get too into the technical details of optimal tariff theory, but I do think that it will not hurt the US economy very much. As you said, a lot of the work on why tariffs hurt, actually depends on the retaliation. That it is when we then lose our ability to export, that's where the real damage comes from. And you're not alone in seeing it that way. That's the way a lot of Wall Street analysts ... It's the way a lot of economists see it, that the retaliation will be what hurts. We may get some retaliation, because people will test Donald Trump. But when they retaliate and then Donald Trump retaliates to the retaliation, because he said they're reciprocal, right? So if you raise-
Mark Zandi: [inaudible 00:58:20] Oh my gosh.
John Carney: ... then they come down.
Mark Zandi: Oh my gosh. Ah. [inaudible 00:58:31]. Let me stipulate-
Jim Parrott: [inaudible 00:58:33] ... expensive. They're all imported.
Mark Zandi: Let's suppose you're wrong and this hurts the economy.
John Carney: Sure.
Mark Zandi: And then there's more stuff going on than just retaliation. The uncertainty effects here are pretty significant.
John Carney: Sure.
Mark Zandi: And we're in a different inflationary environment than we were when Trump won. And I'm not so sure that this is a one-time pop to prices, it feels like this could ... And people are really very sensitive to inflation, as you can see in the surveys. It's having an impact. But so, let's say, Mark Zandi is right and this is going to hurt the economy. Do you think President Trump's going to respond to that and pull back? Or we're going down the rabbit hole with him on this one?
John Carney: So I think he will try many things before backing off on tariffs. So in other words, remember there's a whole list of things. And if none of them work, sure. So he wants to incentivize energy production to lower the cost of energy. Now, that's a difficult thing to do. We don't have time to go into all of that. But, so he wants-
Mark Zandi: Which is not going to happen, John.
John Carney: He wants to do massive deregulation. They've begun to announce how they are going to build a lot more homes. So there's a lot of things that they're doing. Now, if all of those fail, like you said, there's reasons to doubt. Rational people can disagree about whether or not we can really increase energy production and lower prices, because in the past when prices fall, our production falls off. So can you do both? Right? That's a, I agree, a challenge. And so if that stuff fails and it does seem like the tariffs are hurting, I think Donald Trump would back off. I don't think, though, he's as sensitive to stock market movements as maybe he was in the first term.
Mark Zandi: Oh interesting.
John Carney: Or people believe he is now.
Mark Zandi: Well, now I'm more scared.
Jim Parrott: Yeah.
John Carney: This is going to sound uber bearish, but I would be worried that Donald Trump is willing to let the stock market take hits, more so than people give him credit for. A lot of people think the stock market will be a break on Donald Trump, and I do not think that that-
Mark Zandi: John, you may not read the Wall Street Journal anymore. I'm not sure-
John Carney: I do.
Mark Zandi: You read that piece a couple days ago? There's this guy Zandi talking about the wealth effects. Did you catch that? I'm just saying the link between the stock market and the economy, it's-
John Carney: Huge believer in that, by the way.
Mark Zandi: Oh. You are? Okay.
John Carney: I think it's Roger Farmer's work who has shown that the stock market actually influences employment pretty directly. And so I'm a believer in that, so I do think that you cannot really ignore the stock market for very long, because-
Mark Zandi: [inaudible 01:01:31] ... card-carrying member of the capitalist system, I'm part of a ... By the way, John, I started my own company. I grew it to a small business. I sold it to Moody's, but I've been part of it. So I've seen American business from all angles. And I know American business and I totally endorse what you said. Everyone is looking at that stock price as a real-time test of how they're doing. "Stock prices are up. I'm hiring, I'm investing. Stock prices are down. I'm laying off."
Jim Parrott: Can I clarify something you said, John, to make sure I have this right?
John Carney: Sure.
Jim Parrott: What I heard you to say, up until the very end, which is why I want to make sure I understand this, is he's not going to be as sensitive to the stock market as he was last time, by which I took you to mean at least initially, that we may move further into a downturn in the stock market before he's willing to back off of whatever the plan is. Whereas in the first term, it would maybe take a few days for him to think twice about whatever Mnuchin had told him. This time around we will cut through some fat and get to muscle before he gets concerned. But at some point, I assume matters to him and becomes a constraint. It's just not as soon as it would've been earlier. Is that fair?
John Carney: Yeah. And look, Bessen and Lutnick are guys who came from Wall Street. They're going to tell him, "Yeah. Stock market drops 50% where the country is doomed. You cannot have that happen." So there are people who will pay very close attention to this. And I think just psychologically, I think Donald Trump does like it. All presidents do. They don't all talk about it quite as much as he does. But all presidents like it when the stock market's going up. They look at it as a testament ... Just like CEOs look at the their company's stock as a testament to how amazing of a CEO they are. When some studies have showed that it really doesn't matter that much who the CEO is except-
Mark Zandi: No. No. Except Moody CEO.
John Carney: Yeah. So of course. Right. And of course the CEO of Breitbart is the most important person-
Mark Zandi: [inaudible 01:03:40] Yeah. Yeah. There you go. Exactly. Yeah.
John Carney: But presidents I think tend to look at this as an objective indicator about how things are going under their presidency. So Donald Trump is just uniquely, doesn't conceal his opinions as much as a lot of other presidents have.
Mark Zandi: Hey, we're going to have to call this a podcast. Really, really appreciate it.
John Carney: Thanks.
Mark Zandi: I really have a better appreciation of your perspective, a different perspective, and I thought it was very valuable. And hey Jim, thanks for helping fleshing all that out.
Jim Parrott: No. I enjoyed it. Thanks John.
John Carney: We should definitely do it again.
Mark Zandi: And we didn't even get to GSE release.
Cris deRitis: We got plenty of time.
Mark Zandi: We're definitely getting you back, if you'll have us. Hey guys, thanks again. And dear listener. Really appreciate it and we will talk to you soon. Take care now. Bye-bye.