Since President Donald Trump entered the White House, the Federal Reserve has raised interest rates five times, and the central bank is expected to pull the trigger on two more rate hikes this year – one in September and the other in December. The president might now be having second thoughts on nominating Jerome Powell to helm the Fed, telling Reuters that he is “not thrilled” with the gradual normalization of rates.
‘Not Thrilled’ with Rate Hikes
For 30 years, U.S. presidents have had an accommodating, buddy-buddy relationship with the Federal Reserve to facilitate massive government spending and ensure that administrations can hotwire the economy to secure power. The White House does not enjoy the same level of monetary accommodating, noted Trump in a recent interview with the newswire.
And this isn’t making Trump pleased because he believes rate hikes will threaten the fast-growing economy.
“Am I happy with my choice? I’ll let you know in four years. I’ll let you know in seven years,” he said, adding that he should receive some assistance from the Eccles Building:
“I’m not thrilled with his raising of interest rates. No, I’m not thrilled. We’re negotiating very strongly – I don’t call it a trade war – we’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time, I should be given some help by the Fed.”
When pressed if he thinks the Fed is an independent institution, Trump responded that he “believes in the Fed doing what’s good for the country.”
President Trump’s remarks come days after he slammed the Fed Chair at a Republican Hamptons fundraiser, where he reportedly revealed that he thought Powell would leave rates unchanged and maintain the cheap money policies of the last decade. Trump told attendees that his advisors informed him Powell would be sympathetic to “cheap money,” but the continuation of raising rates has surprised him.
The latest events have ostensibly caused Trump to doubt his selection.
Candidate Trump vs. President Trump
Candidate Trump and President Trump hold quite different views on the Fed.
On the campaign trail, the real estate billionaire mogul delivered severe blows to the Federal Reserve System and then-Chair Janet Yellen. He lambasted the central bank for adopting monetary policies to benefit President Barack Obama. He lamented low-rate policies, the Fed’s money-printing ways, and how the central bank is not an independent organization. Trump also vowed to audit the Fed.
All of these were accurate criticisms, and auditing the Fed is a critical move that must be performed.
Ever since Trump defeated the woman who will never become president, Hillary Clinton, he has changed his tune on monetary policy. He now supports low rates, he lauded Yellen for her time at the central bank, and he has encouraged the Fed to act on his whims.
And, instead of suggesting someone who would demolish the Eccles Building with a bulldozer, Trump nominated a safe, bland, and conventional choice. Powell is someone who doesn’t think low rates are creating a stock market bubble, despite the myriad of market bubbles, from bonds to tech to derivatives. That’s all you need to know.
Why not go with former Representative Ron Paul (R-TX) or anyone from the Mises Institute to shake things up?
More of the Same
Suffice it to say, the Federal Reserve needs an overhaul, not just a change in management. The main story surrounding the relationship between the White House and the Fed is independence, but it’s an absurd discussion because the central bank has never been independent. Sure, the president can be upset with Powell, but he’s angry for the wrong reasons. He should be perturbed by rates being suppressed at historic lows, the printing press running, and the Fed manipulating the economy.