What the Fed’s rate hike may mean for President Biden’s fiscal policies

Yahoo Finance senior columnist Rick Newman discusses the Federal Reserve's decision to increase interest rates by 25 basis points and breaks down the long-term effects it could have on President Biden's fiscal policies.

Video transcript

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- The Fed's 25 basis point hike is what the markets were hoping for, but what does it mean for President Biden's agenda? Yahoo Finance Senior Columnist Rick Newman is here. With that, Rick, good to see you, sir. Should President Biden be celebrating this or not so much?

RICK NEWMAN: I don't know why he'd be celebrating, but we've got a big sell off because his Treasury Secretary said a few unpopular words in front of Congress. It kind of feels like nobody can do anything right at the moment, doesn't it? So the Fed moderates, it goes a bit dovish, and people don't think it's dovish enough. So Jerome Powell is getting criticism because he doesn't seem to be hearing enough about banking stability.

Then you have the Treasury Secretary, Biden's appointee, Janet Yellen. She refuses to say that the Biden administration is considering insuring bank deposits to infinity. And that sends stocks down. And meanwhile, inflation is still 6%. And First Republic still seems to be on the rocks. So nothing seems to be going Biden's way at the moment.

But what Biden really needs is things going his way six or eight months from now, assuming that he is going to be running for re-election. And what he really wants to see is some momentum at the start of 2024. So that gives Biden some running room. But I don't think this is a great day for President Biden.

- No, I don't think 0.4 GDP growth is exactly what the President wants as we look forward to an election. But elsewhere, and this does relate to the Fed, Senators Elizabeth Warren and Rick Scott, who are on complete opposite ends of the political spectrum, have actually teamed up on a bill that would require a presidentially appointed and Senate confirmed Inspector General to the Fed board.

Now that is a combination I would compare it to Hidden Valley Ranch debuting an ice cream or White Claw debuting a vodka. It just doesn't make any sense. But it should be interesting, Rick.

RICK NEWMAN: Well, the crazy thing about this is each of these people is kind of at the extreme within their own party. So it's kind of like they went through the back door of a time warp and ended up meeting on the other side somewhere. The crazy thing about this, Dave, is I don't-- this is not a bad idea what they're proposing. So all they're saying is that instead of the Fed having its own Inspector General in house, that's the investigative arm that looks into what the Fed actually does and would look into, for example, would have a role in figuring out the Fed's role in the failure of Silicon Valley Bank. Why didn't it do more?

We're going to find out about-- all they're saying is take that function outside of the Fed. Take it outside the house and make it independent, which is the way the inspector general's office operates at just about every other agency. What that means is that the person in charge of the agency doesn't have any sway over what the Inspector General does. So that's a good thing. So it's almost if you took a lot of acid and a lot of alkaline and you actually got fertile soil from these two polar opposites politically actually getting together and putting this idea forward.

- Hey, [? Scalia ?] and RBG were best friends. So who knows, man. Maybe the best things come of opposites. I applaud it. Rick Newman, good to see you, sir. Thank you.

RICK NEWMAN: Bye, guys.