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Trump criticizes Federal Reserve, breaking long-standing practice

Federal Reserve Board Chair Jerome Powell testifies during a House Committee on Financial Services hearing on Wednesday on Capitol Hill in Washington. (Jacquelyn Martin/AP)

President Trump on Thursday broke with decades of traditional White House silence on Federal Reserve decisions, criticizing the nation’s independent central bank for raising interest rates and suggesting the strong dollar was hurting the U.S. economy.

The president — who has craved low rates since building his real estate fortune with the liberal use of debt — said Fed Chair Jerome H. Powell’s plan to continue gradually raising short-term rates was undermining the administration’s efforts to spur economic growth.

“I’m not thrilled,” the president told CNBC. “I am not happy about it. . . . I don’t like all of this work that we’re putting into the economy and then I see rates going up.”

For Trump, the comments represented the latest in a long line of busted presidential norms. Since the Clinton administration, the nation’s chief executives have declined to comment on Fed actions, out of respect for the independence of the institution and to avoid any hint of political influence over the nation’s money supply.

“A lot of us have been wondering when the first Trump shoe would drop on the Fed,” said Alan Blinder, former Fed vice chairman. “It’s somewhat surprising that it’s taken this long. Still, this was not a Trumpian harangue of the sort we’re all used to. If it stops here and now, it’s not much.”

But with additional Fed rate hikes a virtual certainty as Trump navigates November’s congressional elections and his expected 2020 reelection bid, an escalation of tensions between the White House and Powell seems probable, he added. “The only way something good can come out of this is if you think Donald Trump would do a better job of setting monetary policy than the Federal Reserve,” Blinder said.

By attracting investors to American assets, the Fed’s rate increases are pushing up the value of the dollar against the currencies of major U.S. trading partners. Trump complained in the interview about the euro’s recent slump and said the Chinese yuan was “falling like a rock.”

The dollar’s strength makes American products more expensive for foreign buyers, complicating Trump’s campaign to narrow U.S. trade deficits with Europe and China. “Our currency is going up, and I have to tell you it puts us at a disadvantage,” the president told CNBC, which posted the interview on its website.

“Now I’m just saying the same thing that I would have said as a private citizen,” Trump said. “So somebody would say, ‘Oh, maybe you shouldn’t say that as president.' I couldn’t care less what they say, because my views haven’t changed.”

Financial markets wobbled but took the president’s comments mostly in stride. The dollar recovered after falling sharply, and bond yields eased slightly. The value of financial contracts that represent a wager on expected Fed policy actions were little changed.

“Trump has his wishes. But out of all the things that move expectations on Fed policy, his wishes are not one of them,” said Marc Chandler, senior vice president at Brown Brothers Harriman.

Most members of the Fed’s policymaking open market committee also took office before Trump’s election.

By adding fuel to an economy that already was at full employment, Trump has contributed to the situation he is criticizing. Last year, the Republican-controlled Congress cut corporate and individual taxes by $1.3 trillion, providing a boost for an economic expansion that was in its ninth year.

With the unemployment rate at 4 percent and jobless claims at their lowest level since 1969, the Fed risks falling behind the pace of interest rates increased needed to prevent runaway inflation, some economists say.

“He’s contributed to an incredible challenge for the Fed. He’s the one who’s done this — caused the Fed to continue raising rates and go further than they otherwise would,” said Laurence Meyer, a former member of the Fed’s board of governors.

Trump nominated Powell as Fed chairman last year to replace Janet L. Yellen. Powell, a former banker and Fed governor, has largely followed the path the central bank has been on for three years, slowly raising interest rates as the economy strengthens, unemployment declines and inflation stirs.

He was a junior Treasury Department official in 1991 when aides to President George H.W. Bush pressured Fed Chairman Alan Greenspan to reduce rates more quickly to fight a looming recession.

This week, he told Congress that the “best way forward” is to keep gradually raising borrowing costs. The Fed slashed short-term rates to near zero in the wake of the 2008 financial crisis. In June, the nation’s central bank raised rates for the seventh time since December 2015, in a move designed to slowly cool the economy.

Trump has a history of assuming political motives for Fed actions. In November 2015, during his presidential campaign, he accused the Fed of keeping rates artificially low to benefit President Barack Obama.

He was critical then of low interest rates, noting accurately that they punished savers with meager rewards. Trump also said that those rates were fueling a financial “bubble” that he hopes would pop before he became president.

“We’re in a bubble,” Trump said on ABCs Good Morning America. “And, frankly, if there’s going to be a bubble popping, I hope they pop before I become president because I don’t want to inherit all this stuff. I’d rather it be the day before rather than the day after, I will tell you that.”

An investor who heeded Trump’s bubble call would have missed out on solid financial gains. Since his Good Morning America interview, the Dow Jones industrial average has risen more than 55 percent.

For years presidents have avoided commenting on the Fed, which markets broadly trust to act in service of its dual objective — maintaining maximum employment and stable prices — rather than political aims. In 1972, President Richard Nixon pressured then-Fed Chairman Arthur Burns to keep rates low, despite signs that the economy was overheating, to help his reelection campaign.

Nixon won a second term in November 1972, but by the following year, consumer prices were increasing at an annual rate of nearly 10 percent.

In late 1965, President Lyndon Johnson summoned Fed Chair William McChesney Martin — famous for explaining the Fed’s mission as removing “the punch bowl just as the party is getting good” — to his Texas ranch to complain about rising interest rates, which threatened Johnson’s desire to spend freely.

“Attacking central bank is one more step in what seems like a Presidential strategy of turning the United States into a banana republic,” Larry Summers, the former treasury secretary, tweeted in response to Trump’s comments.

Trump’s desire to keep rates low is at odds with traditional GOP thinking on the Fed. Republicans in recent years criticized the Fed for keeping interest rates low, which they said risked debasing the dollar and sparking runaway inflation.

Yet despite nearly a decade of unusually low interest rates, and other extraordinary Fed action, inflation has remained tame. Consumer prices have increased 2.9 percent over the past 12 months, the Bureau of Labor Statistics reported earlier this month.

“The Fed is an independent institution and it’s run by a committee,” said Roberto Perli, a former Fed official and partner at Cornerstone Macro. “I don’t think Jay Powell will feel any pressure to do what the president wants him to do.”