President Trump, do yourself a favor. Stop attacking the Federal Reserve and its chairman, Jerome H. Powell (yes, the same Powell you nominated). The result would be better for you, better for Powell and — most important — better for the country.
Unfortunately, Trump can’t seem to restrain himself.
“I will tell you, at this moment in time I am not at all happy with the Fed. . . . They’re making a mistake because . . . my gut tells me more sometimes than anyone else’s brain can ever tell me. . . . I’m not even a little bit happy with my selection of Jay. Not even a little bit.”
.. Until recently, there seemed to be a crude consensus among economists that the Fed should continue its gradual increases in interest rates to preempt higher inflation. The economy seems strong enough to tolerate tighter credit.
The unemployment rate of 3.7 percent is the lowest since the 1960s; inflation is around 2 percent; consumer confidence is high.
But the consensus may be fraying. There are signs of weakness.
- The stock market has fallen;
- housing sales and prices have softened;
- the trade war between the United States and China remains unresolved
.. On Nov. 26, the paper ran an op-ed by
- Harvard economist Martin Feldstein, a chairman of the Council of Economic Advisers under President Ronald Reagan, urging the Fed to raise rates. The next day, the Journal ran an op-ed by
- Harvard economist Jason Furman, chairman of the CEA under President Barack Obama, counseling delay.
.. One danger for Trump is that the Fed, seeking to prove its “independence,” will deliberately oppose what the president prefers.
.. One danger for Trump is that the Fed, seeking to prove its “independence,” will deliberately oppose what the president prefers.
.. “President Trump has gone completely off the rails with his criticism of Fed Chair Powell,” says economist Mark Zandi of Moody’s Analytics. He “is using the Fed as a scapegoat for anything that goes wrong in the stock market and the economy.”
In Trump’s defense, he is not the first president to try to control the Fed and corrupt its independence.
- Lyndon B. Johnson lambasted then-Fed Chairman William McChesney Martin in the mid-1960s for raising interest rates against his wishes.
- Richard M. Nixon pressured Arthur F. Burns, Martin’s successor, to keep rates low. Likewise, President
- Harry S. Truman pushed the Fed to maintain easy money and credit.
.. But these and other cases occurred mainly behind closed doors. Trump’s brash innovation has been to take his complaints public; the apparent aim is to intimidate the Fed into doing his bidding. If the Fed resists, Trump might propose legislation curbing its powers. That would signal a real state of war between Trump and the Fed, with what consequences for financial markets and the economy, it’s hard to know.
.. It’s also true that attacking the Fed has long been standard operating procedure for members of Congress of both parties.
“Congress depends on the Fed both to steer the economy and absorb public blame when the economy falters,” write Binder and Spindel. A lot of this criticism is political theater, designed to impress voters but not to do much else. What’s not familiar is for the president to be leading the charge.