President Trump’s decision to blame the Federal Reserve for Wednesday’s stock market dive dramatically escalated months of public and private fuming about the central bank.
On Thursday, Trump said again he was disappointed with Powell but added that he didn’t want to fire him. Trump does not have the legal authority to fire the Fed chair, but he can make life increasingly difficult for Powell by ramping up criticism. Powell will be able to serve until he resigns or until his term as chair ends in 2022.
Trump has been stepping up his verbal attacks on the Fed, breaking with years of tradition during which U.S. presidents and their advisers avoid commenting directly on Fed policy out of respect for the central bank’s independence. Trump has indicated he is concerned that the Fed’s decision to hike rates could slow economic growth, which Trump has predicted would consistently exceed 3 percent during his tenure.
So far, Trump does not appear to have taken action beyond increasingly sharp rhetoric to express his disapproval of the Fed’s policies. Trump has appointed three of the current four members of the Fed’s board of governors, which along with regional Fed presidents sets interest rate policy.
While Trump clearly wants the Fed to hold off from further hikes, deciphering the exact meaning of his comments is difficult.
“I think the Fed is making a mistake,” he said Wednesday. “They’re so tight. I think the Fed has gone crazy. So you can say that, ‘Well that’s a lot of safety actually.’ And it is a lot of safety. And it gives you a lot of margin. But I think the Fed has gone crazy.”
Trump also criticized the Fed heavily on the campaign trail, saying then chair Janet Yellen, the first woman to hold the prominent position, was “doing what Obama wants her to do” by keeping rates too low and that she should be “ashamed” of herself. He implied that low interest rates were creating a stock market bubble.
In an otherwise highly controversial presidency, Trump has heralded the strong economy as one of his biggest achievements. On Tuesday, Trump boasted to a New York Magazine reporter that “we have the greatest economy in the history of our country.”
On Wednesday, he discounted the stock market’s plunge — with the Dow Jones industrial average falling 831 points. “Actually, it’s a correction that we’ve been waiting for, for a long time,” Trump said.
Trump’s comments about the Fed going “crazy” came in contrast to a more measured statement issued by the White House about how the economy was strong.
Kevin Hassett, head of Trump’s Council of Economic Advisers, said on Tuesday that the president is expressing his views on monetary policy but that he isn’t trying to “politicize” the Fed. Hassett pointed to the six nominees Trump has made so far to serve on the Fed’s board of governors, all of whom have spent extensive time in finance, banking or academia. Three have PhDs in economics, and three have law degrees. (Three await confirmation.)
“Part of President Trump’s brand is he says what he thinks, but he respects the independence of the Fed, and that’s clear from his nominations,” Hassett said at the Council on Foreign Relations. “I think our nominees have been absolutely first-rate.”
Other economic officials pushed back at the president’s statement.
“I would not associate Jay Powell with craziness. No, no, he comes across, and members of his board, as extremely serious, solid and certainly keen to base their decisions on actual information, and decide to communicate that properly,” said Christine Lagarde, managing director of the International Monetary Fund, at a meeting of the IMF and World Bank in Indonesia, according to CNBC.
Trump has taken a number of steps this year to further juice the economy, including boosting federal spending. That comes after a big tax cut enacted last December. He has shirked any criticism of the ballooning deficit, tried to jawbone foreign leaders to lower oil prices and repeatedly attacked the central bank for raising interest rates.
Trump has said he likes low interest rates in part because of his background in real estate. Higher interest rates makes it more expensive to borrow money, giving consumers or businesses pause before taking out a loan. It is often tied to higher costs of borrowing for the federal government, which can spook investors.
Interest rates are rising. Some 30-year fixed-rate mortgages are now offered with an interest rate above 5 percent, significantly higher than when Trump took office.
Powell and Trump haven’t personally discussed the matter, the Fed chair has said, but Trump’s rhetoric has alarmed some Democrats and Republicans on Capitol Hill. They have reached out to the Fed leader to ensure that there hasn’t been improper political interference.
Powell has repeatedly downplayed the president’s comments, saying they have no impact on the Fed’s decision-making.
“We’re quite removed from the political process,” Powell said in an interview last week at the Atlantic Festival in Washington. “We just try to do the right thing for the medium- to long-term for the country. We don’t let other things distract us.”
Both Powell and the president confirmed in recent days that they have not spoken to each other about interest rates. Powell defended the Fed’s plans to raise interest rates gradually in the coming months, saying it was appropriate policy in such “extraordinary” economic times.
One former Treasury official said that while Trump’s comments are unusual, they don’t appear to be changing the Fed’s direction. The Fed’s main interest rate, the federal funds rate, stands between 2 and 2.25 percent. The central bank has hiked interest rates three times this year and expects to do so again in December.
“It seems like the Fed is continuing on the course that markets expect, to raise interest rates given the tight labor market,” said Phillip Swagel, who was a top Treasury official during the George W. Bush administration. “That doesn’t seem especially surprising.”
Trump selected Powell, a Republican who served in the George H.W. Bush administration, to lead the Fed over a number of other candidates — including several who favored even more-aggressive rate hikes. He was persuaded by Treasury Secretary Steven Mnuchin that Powell, who was already a Fed governor, would be a force for stability.
But in August, Trump said he was “not thrilled” with Powell, though he took his criticism much further on Wednesday when he said the Fed was “crazy.”
Some of his former advisers said they believed Trump’s criticism of the central bank was warranted. Steve Moore, who was a Trump adviser during the 2016 campaign, said the central bank traditionally raised interest rates as a way to fight inflation, but he said there weren’t strong signs that inflation was threatening to affect the economy.
“I find myself in general agreement with Trump on his criticism of the Fed, which is that raising interest rates now doesn’t seem necessary,” Moore said. “Where is the inflation that they are fighting? Where is it?”
The stock market has risen markedly since Trump took office, and the unemployment rate has fallen from 4.8 percent to 3.7 percent. Economic growth has improved, and Republicans have taken steps to cut taxes and regulations. Economic experts are split on how long the strong economy will continue, and some investors are convinced that a number of stocks — particularly technology companies — are overpriced and were due for a slide.
But Trump loves to tout good economic news and either dismisses bad economic news or blames it on the Fed.
In a sign of how much animosity Trump holds toward the central bank, Moore said he believes Trump regrets appointing Powell to the position.
“I wonder today whether Trump really has some buyer’s remorse with respect to selecting Powell as his Fed chairman, because that was a strange pick,” Moore said.