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- President Donald Trump broke a multi-decade tradition by weighing in on the Federal Reserve’s monetary policy.
- Trump said he is “not thrilled” about the Fed’s recent interest rate hikes.
- His comments drew concern that Trump was trying to put political pressure on the Fed.
- But one JPMorgan economists thinks Trump’s public desire for lower interest rates could actually backfire.
President Donald Trump upended nearly three decades of presidential precedent by commenting on the Federal Reserve’s interest rate policy on Thursday, but at least one economist thinks the president’s remarks could come back to bite him.
During an interview with CNBC, Trump said that while Federal Reserve Chair Jerome Powell, who took over the role in February, was a “a very good man,” he did not like the central bank’s recent interest rate hikes.
“I’m not thrilled, because we go up and every time you go up they want to raise rates again,” Trump told CNBC. “I don’t really – I am not happy about it. But at the same time I’m letting them do what they feel is best.”
The Fed has been set on a slow and steady path of interest rate hikes over the past two years, leading economists to wonder if the central bank could tamp down some of Trump’s promised economic growth.
Trump’s remarks immediately raised questions about Trump’s commitment to the Fed’s political independence, a key pillar of the central bank’s function. In addition to Trump’s comments to CNBC, Larry Kudlow, the president’s top economic adviser, also told Fox Business last month he hoped the Fed raised rates “very slowly.”
The comments raised the specter of President Richard Nixon’s pressure on the Fed in the 1970s, which led to economically damaging stagflation. But JPMorgan economist Michael Feroli advanced an interesting alternate theory: Trump’s comments may inspire the Fed to go the other direction.
“Given what we know about Powell, we see little chance the President has gotten in his head,” Feroli wrote in a note to clients. “In fact, an argument can be made that the President’s comments may skew the Committee in a hawkish direction: if a decision is a close call then the appearance of kowtowing to the President may bias them toward raising rates.”
Put another way: The best way for the Fed to assert its independence is to do exactly the opposite of what Trump suggested.
Feroli also noted that the easiest way for Trump to bend the Fed to his political will would be to fill the Federal Reserve Board of Governors with members that agreed with a low interest rate policy or were personally connected to the president. Given Trump’s recent Fed picks, this doesn’t appear to be the case.
“When the President took office there were several vacancies on the Federal Reserve Board; now there is only one,” Feroli said. “Even if the remaining nominee were a ‘like-minded low interest rate guy,’ that person would be but one out of a Committee of 12.”
The White House also attempted to assuage fears of the president pressuring the Fed immediately after Trump’s comments were released.
“Of course the President respects the independence of the Fed,” White House spokesperson Lindsay Walters told Business Insider. “As he said he considers the Federal Reserve Board Chair Jerome Powell a very good man and that he is not interfering with Fed policy decisions.”