President Trump on Monday criticized Federal Reserve Chairman Jerome H. Powell, his appointee, for raising interest rates too quickly.
Trump is escalating his Fed-bashing ahead of the central bank’s next meeting and against the advice of many of his top economic advisers. Recent presidents have refrained from commenting on the Fed’s handling of the economy out of respect for the Fed’s independence.
“I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” Trump said in an interview with Reuters. He urged the Fed to avoid doing anything that could slow economic growth.
The benchmark U.S. interest rate, which plays a large role in setting borrowing costs for mortgages, credit cards, small businesses and auto loans, was set at 0.5 percent to 0.75 percent when Trump was sworn in. The benchmark rate is now 1.75 percent to 2 percent, and the Fed has indicated it is likely to increase rates two more times before the end of the year.
Wall Street analysts almost universally expect the Fed to raise rates at its next meeting on Sept. 25-26.
Trump has recently shown a penchant for trying to intervene in ways that he believes will help the economy in the short term, or spin positive economic news in a way that he thinks improves Republican chances going into the midterm elections. In addition to jawboning the Fed on interest rates, Trump has tried to take steps to keep oil prices low, another measure he thinks could help the economy this year.
In recent weeks Trump has stepped up his criticism of the Fed, an independent body that is not controlled by Congress or the president. Powell, a Republican, has repeatedly said that he believes in the Fed’s independence and that he and his colleagues who set interest rates will not bow to outside pressure.
“We’re going to do our business in a way that’s strictly nonpolitical, without taking political issues into consideration, and that carries out the mandate Congress has given us,” Powell said last month in a radio interview with Marketplace.
Recent presidents have largely avoided criticizing the Fed, trying to preserve the bank’s independence and its credibility with financial markets, foreign governments and the public.
The Fed is raising rates in an effort to keep prices stable and to prevent the economy from overheating, but Trump has complained the increased rates are obstacles to economic growth. Republicans are putting the strong economy at the center of their campaign agenda ahead of the midterm elections, as they work to retain control of the House and Senate.
During the 2016 presidential campaign, Trump accused the Fed of propping up the Obama economy by keeping rates low, and he berated the Fed in a tweet in 2012 for providing too much stimulus. Since taking office, however, Trump has changed his mind and become an advocate of low rates.
Trump selected Powell for the job last year from a shortlist of several prominent central bankers, partly because he believed Powell was more likely to keep rates lower for longer than other Republicans on the list such as John Taylor and Kevin Warsh. Trump praised Powell for his “wisdom” and “leadership” skills when he nominated him in November. Less than a year later, he is calling into question Powell’s stewardship of the economy.
The president’s top economic advisers have repeatedly urged Trump not to attack the Fed. Treasury Secretary Steven Mnuchin recently told reporters that he had personally spoken to Trump about the central bank and that the president respects the independence of the Federal Reserve. But that stands in contrast with the president’s own words, which are often critical of Powell and suggest the Fed should be moving in a different direction.
The Fed declined to comment, but former Fed officials have expressed alarm at Trump’s frequent criticism, which they think will continue in the coming months.
“I’m very concerned, especially given this very divisive and highly politicized environment, that bringing the Fed into that environment could complicate the Fed’s communications [to the public], its support in the Congress and among the American people,” said Donald L. Kohn, who spent 40 years at the Fed and retired as its vice chairman in 2010.
Kohn said it puts more pressure on Powell and other Fed officials to explain their actions and their perspectives. He said the Fed was designed so that it would be accountable to policymakers and the public, but it was also designed to be independent from White House pressure. Kohn said he didn’t think Powell or the Fed would change their course because of Trump’s remarks.
“I don’t see their [the Fed’s] actions as being particularly affected by all this,” he said.
But Trump does have one powerful hold over the Fed: He gets to appoint people to the central bank’s policymaking board, and there were an unusually large number of openings when Trump took office.
Powell has described the economy as “strong” numerous times this summer, but he also sees this as an opportune time to lift interest rates back to normal levels after years at historic lows, a Fed effort to stimulate the economy in the aftermath of the financial crisis and Great Recession.
“For the past three years, we have been gradually returning interest rates and the Fed’s securities holdings to more normal levels as the economy strengthens,” Powell told Congress last month. “We believe this is the best way we can help set conditions in which Americans who want a job can find one, and in which inflation remains low and stable.”