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Trump: Powell must protect the Fed’s independence from attacks

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President
Donald Trump and Federal Reserve Chair Jerome
Powell

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  • President Donald Trump has broken with tradition by
    criticizing his own pick for Federal Reserve Chairman, Jerome
    Powell, for raising interest rates. 
  • Powell’s Jackson Hole speech Friday morning presents
    the perfect opportunity for a measured but decisive pushback
    from the Fed chairman.

Federal Reserve Chairman Jerome Powell’s primary job is to ensure
low and stable prices as well as low unemployment — but most
economists agree that he can only do that in the long run if the
central bank remains politically independent.

President Donald Trump, in an extension of his attacks on many
key US institutions and norms, has vocally criticized Powell, his
own pick to replace ex-Fed Chair Janet Yellen, for raising
interest rates.

First, Trump complained to a group of donors in the Hamptons that
Powell wasn’t turning out to be the
“cheap money” Fed chairman
he had expected. 

He was even more explicit
in a Reuters interview:
 “

I’m not thrilled
with his raising of interest rates, no. I’m not thrilled.” The
Fed has raised interest rates five times since Trump took office,
with two of those hikes coming under the leadership of Powell. It
is expected to hike rates two more times this year, according to
Bloomberg’s World Interest Rate Probability data. 

Trump’s comments rattled markets briefly, with stocks and
the dollar edging lower.

“We’re negotiating very powerfully and strongly with other
nations,” Trump said, even though most trade negotiations appear

troubled or stalled at the moment
. “We’re going to win. But
during this period of time I should be given some help by the
Fed. The other countries are accommodated.”

There’s a clear contradiction in Trump’s economic argument: On
the one hand, he claims economic growth is raging like never
before (it’s not), but also argues the Fed should supercharge
this growth with more stimulus.

More importantly, such an explicit and dangerous breach of
norms calls for a strong response from the Fed, which has thus
far not been forthcoming. But Powell has the perfect venue in
which to deliver such a rebuttal: Tomorrow’s widely-watched
speech from Jackson Hole, Wyoming, at the Kansas City Fed’s
idyllic annual symposium.

Powell doesn’t have to say a lot, or mention Trump by name.
He should simply insert a sentence in his speech that says the
central bank will continue to set interest rates based on the
economic outlook, not the whims of politicians.

To be clear, there’s an economic case to be made for the
Fed to slow or stop the pace of its interest-rate hikes. While
the economy is strong, inflation has just barely reached the
Fed’s 2% target after years of undershooting it, and wages for
most workers remain stuck in neutral despite a historically low
3.8% jobless rate. But that’s not Trump’s argument, and it’s not
his to make in the first place.

Powell needs to make that boundary quite clear. Otherwise
the president will keep pushing.

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