Jerome Powell’s playbook includes making allies outside the Oval Office, never talking politics and sticking to the economy.
Federal Reserve leaders for the past quarter-century have made decisions about interest rates without being pressured by the president.
President Trump has broken that streak, calling the central bank “crazy” for raising rates and more than once saying the Fed is damaging the economy. That has prompted Fed Chairman Jerome Powell to update playbook rules for dealing with a president annoyed by America’s central bank.
Rule 1: Speak not of Mr. Trump.
Rule 2: When provoked, don’t engage.
Rule 3: Make allies outside the Oval Office.
Rule 4: Talk about the economy, not politics.
.. Mr. Trump blamed the Fed for October’s stock market selloff, calling the central bank “out of control.” The president told The Wall Street Journal Oct. 23 that Mr. Powell seemed to enjoy raising rates.
Not since the 1990s has a president leaned so hard on the Fed chief and never so publicly. On Monday, Mr. Trump told the Journal: “I think the Fed right now is a much bigger problem than China.”
.. The Fed’s benchmark interest rate is now in a range between 2% and 2.25%, well below long-run averages. The central bank is expected to raise rates by a quarter-percentage-point at its Dec. 18-19 meeting.
Mr. Powell says he is raising rates to return them to a more normal setting and avoid the type of boom-and-bust economy that ended in past recessions.
.. Mr. Trump has said he doesn’t plan on firing Mr. Powell, and it isn’t clear he could. The Federal Reserve Act states a Fed governor can only be removed for cause, a high bar that courts and legal scholars have interpreted to mean malfeasance or neglect.
.. The Fed’s credibility could suffer
- if investors believe its commitment to guard against inflation has been compromised by politics, or
- if Mr. Trump’s attacks sour the public’s view of the central bank.
“At some point, it becomes very damaging to the institution to be perceived as not acting in the best interest of America,” former Fed Chairwoman Janet Yellen said in an interview.
.. Mr. Powell has told others that he knows the president’s criticism could make his life unpleasant, but that he wouldn’t respond to political pressure. People close to Mr. Powell said he understood that history would judge him on policy decisions made over his four-year term.
- President Lyndon B. Johnson once summoned Fed Chairman William McChesney Martin to his Texas ranch to berate him for raising interest rates, saying it was despicable, according to Mr. Martin’s account.
- One low point for the central bank came when President Richard Nixon privately pressured Fed Chairman Arthur Burns to keep rates low before the 1972 election, according to Oval Office recordings. Mr. Burns kept rates low and inflation accelerated.
.. Shortly after President Reagan’s inauguration, a White House staffer asked Fed Chairman Paul Volcker if he wanted to host the new president at the Fed. Mr. Volcker declined, but replied he would be happy to meet the president anywhere else. They settled on the Treasury Department as a neutral ground.
Top Reagan administration officials frequently criticized Mr. Volcker, who presided over rate increases that triggered recessions in 1980 and 1981. But President Reagan refrained. “He just never did it,” Mr. Volcker said in an interview last year.
.. President George H.W. Bush’s Treasury Secretary Nicholas Brady cut off regular breakfasts with Fed Chairman Alan Greenspan to show his disapproval of tight-money policies in 1992. Mr. Brady stopped inviting Mr. Greenspan to dinner parties and golf dates at Augusta National.
“Our decisions can’t be reversed by the administration,” Mr. Powell said earlier this month in Dallas. “Of course, Congress can do whatever it wants.”
.. Messrs. Coons and Sen. Jeff Flake (R., Ariz.) later decided to send Mr. Trump a letter telling him to lay off the Fed.
“You appear to be telling the Fed what to do with interest rates, which we believe is unconstructive and dangerous,” the senators wrote the president.
.. In his new memoir, Mr. Volcker described how White House chief of staff James A. Baker III, with President Reagan watching silently, ordered the Fed chairman not to raise interest rates before the 1984 election.
Mr. Volcker, who wasn’t planning to lift rates anyway, didn’t tell colleagues or lawmakers about the episode. Mr. Baker has said he didn’t recall that.