The Fed and the political diet, OpenAI's struggles, Musk's rankings: highlights from economists' blogs

Due to the growing controversy between US President Donald Trump and Fed Chairman Jerome Powell, central bank independence has once again become a topic of discussion among economists. Where are its boundaries in a democratic society? The blogs discuss another fight for independence - between OpenAI and Microsoft: whether Sam Altman will be able to get rid of the influence of the main investor. And billionaire Ilon Musk has lost support among Republicans by leaving government projects and engaging in a public spat with Trump. More details - in our review.

The confrontation between Donald Trump and Federal Reserve Chairman Jerome Powell has received a qualitative development this week: the head of state is accelerating the search for  candidates to replace him, wrote WSJ. According to the publication, Trump may name a new Fed chief in September-October, but it is possible that it could happen as early as this summer. Technically, Powell's term expires in May 2026. 

Trump has repeatedly urged the Fed to cut the rate, but the regulator has consistently refused to do so, citing, among other things, the risks of a price hike due to the trade war the U.S. president has launched.

That is, the principle of the Fed's independence has been strictly observed so far. It is a guarantee of investor confidence and the effectiveness of the fight against inflation. But now respected economists are asking the question: where are the limits of independence of the American central bank?

John Cochrane, professor of economics at the Stanford Graduate School of Business,writes on his blog The Grumpy Economist: «The Fed's independence is not absolute, not carved in stone. We don't appoint a central bank 'czar' for life and say, 'Do what you want.' The central bank is a government agency created by Congress to perform specific tasks, primarily to control inflation and promote employment.»

One argument in favor of Fed independence is that it helps avoid political temptations, he continues. Congress and the White House can stimulate the economy in the run-up to elections. In the long run, such measures cost inflation and a drop in confidence in the dollar. «So the U.S. political system, like a person on a diet determined to keep chocolate away, has delegated monetary policy to a relatively independent body,» Cochrane wrote. 

Another argument for central bank independence is related to the so-called «temporal incoherence« - when the optimal policy in the short run contradicts the same policy in the long run. The concept was articulated in a article by Finn Kydland and Edward Prescott in 1977. They won the Nobel Prize in Economics for it. 

This idea is largely the basis of the independence status of central banks.  «Temporary inconsistency» is as follows: let's say today the central bank declares that it will pursue low inflation in order to reduce the expectations of rising prices among the population. Tomorrow, when expectations are already formed and inflation is low, the regulator is tempted to suddenly cut rates or accelerate money supply growth. This will help temporarily stimulate employment and economic growth or reduce the real value of government debt (at the expense of higher inflation). But even if it is done once, the public will expect the same policy to be repeated in the future and will not trust promises of low inflation. As a result, inflation expectations will rise, and then inflation itself;

Another argument in favor of Fed independence grew out of the ideas of one of the most influential economists of the 20th century, Milton Friedman, who convinced everyone that it was the central bank that should control inflation. If it is the ultimate controller of inflation, it must be protected from political interference in order to act consistently. 

However, as Cochrane notes, in practice today inflation is increasingly determined by fiscal policy, external shocks and expectations, and central bank actions do not have as direct an effect as previously thought. 

He cites U.S. fiscal policy in 2021-2023 as evidence of this, when a surge in government spending - in the form of direct payments to households, subsidies to businesses, and massive stimulus programs - was accompanied by a spike in inflation that the Fed failed to promptly influence even with subsequent monetary tightening. 

According to Cochrane, central bank independence is not a goal, but a tool. It is needed to curb short-term political impulses and ensure long-term macroeconomic stability. But like any tool, it requires clear boundaries and accountability. The central bank should be free from pressure, but not from responsibility. True, Cochrane clarifies that there are questions about whether the Fed's mandate should be reconsidered, but there are so many that it's best not to open that Pandora's box. «In my view, the institutional structure of the U.S. is arranged quite properly. The Fed has sufficient accountability and sufficient institutional independence. It remains one of the most apolitical and competent agencies in Washington,» he wrote.

New details of the rift between OpenAI, the creator of ChatGPT, and its biggest investor, Microsoft, came to light this week.

The Information wrote, citing sources, that the tech giant is trying to remove an important detail from the companies' multi-year agreement. Under the agreement, which expires through 2030, Microsoft gets the exclusive right to sell access to AI models and 20 percent of OpenAI's revenue up to $92 billion. But there's a special condition: the tech giant loses its exclusive access to OpenAI's technology, APIs and infrastructure after it generates $100 billion in net profit

Microsoft is seeking to exclude this clause from the contract, but OpenAI is opposed. The Wall Street Journal adds that OpenAI management has discussed the possibility of announcing a general-purpose AI if their AI programming agent surpasses the abilities of an experienced human programmer. OpenAI's board of directors is only required to confirm in good faith that AGI has been achieved. However, Microsoft could then sue the company, which could lead to a long and complicated legal battle, the WSJ writes.

Tensions between the longtime partners have been building for months. OpenAI CEO Sam Altman is looking for ways to reduce dependence on Microsoft. For example, the company signed a military contract with the Pentagon for $200 million. Now any attempts by Microsoft to limit OpenAI's autonomy can be viewed as a threat to U.S. national security, notes author Nikita Likhachev of the Likhachev's Radio Room Telegram channel.

OpenAI and Microsoft's relationship goes back many years. In 2019, Microsoft invested $1 billion in OpenAI, then a little-known startup. In total, Microsoft has invested $13 billion in OpenAI to date. Microsoft came to Altman's personal rescue in 2023, when OpenAI's board of directors unexpectedly fired him. Microsoft CEO Satya Nadella said at the time that Altman would join Microsoft, and his company offered employment to the entire key OpenAI team. It worked - within days, Altman was reinstated.

The technology giant is not favorable to OpenAI to get full freedom: in this case, Microsoft loses its influence on the partner. The company, for example, demands lifetime access to all OpenAI technologies. For the GPT developer, this seems like overkill, Bain Capital Ventures partner Sanya Ojha wrote in his blog.

To resolve the conflict, OpenAI, as reported by The Information, is offering Microsoft to zero out all contractual rights in exchange for a 33% stake in its new corporate structure. The corporation is not satisfied with such terms. According to the FT, Microsoft is even willing to give up shares in OpenAI in exchange for full access to its post-2030 technologies and a share of sales.

OpenAI is the same threatens to charge Microsoft with antitrust violations and unfair competition. «Such a card is being played for a reason - it speaks to how cornered OpenAI feels. Imagine borrowing a friend's car, winning a race, and then complaining that he was breaking the speed limit,» Oja writes;

After leaving the White House at the end of May and having a public spat with US President Donald Trump, billionaire Ilon Musk has disappeared from the political public eye. And his space business rival Jeff Bezos is trying to take advantage of Musk's cooled relationship with the president - he wants his company Blue Origin to get more government contracts in the space industry, WSJ sources say. 

American Statistician Nate Silver and analyst Eli McCone-Dawson in a Silver Bulletin blog presented the first measurements of Musk's approval rating already after the spat with the president. 

On average, now 37% of Americans have a favorable opinion of Ilon Musk, and 55.1% have a negative one. That is, his net rating (the difference between positive and negative evaluations) is minus 18.1. Among Republicans it is much higher, but even in this group Musk has become less popular compared to the period before the conflict with the president;

Silver and McCone-Dawson publish data from three polls. In the first week after Musk's public skirmish with Trump, his net rating among Republicans dropped 32.8 percent, according to YouGov. The poll was conducted from June 6 to June 9, and the data is compared to the previous week.

Between June 11 and June 16, Musk's popularity among Republicans dropped 20.6 percent from May 16-18, according to Reuters/Ipsos data.

Three weeks after the scandal, Musk's approval rating is down 25.5 percent - that's Morning Consult data for June 20-22, compared to the May 30-June 2 period.

This article was AI-translated and verified by a human editor