Barron's Advisor

Sebastian Mallaby: Trump, the Fed, AI and Liquidity Risks for Advisors

Aug 12, 2025
Sebastian Mallaby, a senior fellow in international economics at the Council on Foreign Relations, delves into the intersection of finance and disruption. He discusses the vital independence of the Federal Reserve amidst political pressures and its historical relevance. Mallaby sheds light on AI's role in reshaping inflation dynamics while offering insights on job displacement. He also explores how Persian Gulf nations are gaining financial power through energy exports and the implications of AI on capital markets and governance. It's a captivating blend of economics and technological evolution.
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INSIGHT

Fed Strength Came From Clear Goals And Independence

  • The Fed's effectiveness has varied over time, improving after the 1970s with clearer inflation targeting and political independence.
  • Greenspan helped cement independence, making price stability the Fed's dominant achievement.
INSIGHT

Price Stability ≠ Bubble Control

  • Fed chairs can target consumer-price inflation yet still miss asset bubbles, producing dangerous boom-bust cycles.
  • Greenspan showed price stability skill but was too passive on asset-price froth, helping sow later crises.
ADVICE

Defend The Fed By Building Hill Alliances

  • Build political alliances on Capitol Hill to defend central bank independence.
  • A Fed chair must cultivate Senate support to resist executive pressure.
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