LIKE PRESIDENTIAL respect for the independence of the Justice Department, presidential respect for the independence of the Federal Reserve is an unwritten rule but vital to modern American governance. And like Justice Department independence, Fed independence solidified, as a norm, partly in reaction to President Richard Nixon’s abuses of power. Mr. Nixon’s obstruction of Watergate investigations is famous; less known is his pressure on his appointee as Fed chairman, Arthur Burns, to unleash monetary stimulus in time for the 1972 election, which Nixon won. The country paid a huge price in the form of subsequent inflation.
It’s no surprise that, along with bullying the Justice Department and special counsel Robert S. Mueller III, President Trump would violate the norm against presidential criticism of Fed policy. Lately, the central bank has been gradually raising interest rates, which, to the president, is thwarting the pro-growth impact of tax cuts and deregulation. “I’m not thrilled,” the president told CNBC’s Joe Kernen . “Because we go up and every time you go up they want to raise rates again. 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.”
Still cleaning up after the foreign-policy mess Mr. Trump created in Helsinki, the White House tried to control the damage from this latest presidential outburst, issuing the following statement: “Of course the President respects the independence of the Fed. 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. The President’s views on interest rates are well known and his comments today are a reiteration of those long held positions, and public comments.”
Too late. Mr. Trump has put Mr. Powell in a difficult spot. If he and his Fed colleagues change policy, even based on their good-faith judgment, they will appear to have bowed to presidential pressure. If they stick to their course, some will say they only did so to avoid the appearance of political control. In that sense, Mr. Nixon’s arm-twisting of the Fed had the advantage of being done behind closed doors. Yes, there was a patina of impartiality — “I’m letting them do what they feel is best” — to Mr. Trump’s expression. The clear impression remains, however, of a president already preparing to scapegoat the Fed if a recession develops between now and the 2020 election.
A better relationship between the Fed and the White House was established during the first term of Republican President Ronald Reagan, who backed (despite contrary comments from lower-ranking administration officials) then-Chairman Paul Volcker as he wrung inflation out of the economy even at the cost of a politically damaging recession. Mr. Powell, today’s chair, is indeed a “good man,” one of the best appointments Mr. Trump has made. Like so many other people who have agreed to serve in this troubled time for U.S. democracy, he must now uphold valuable unwritten rules of governance even if it may mean clashing with the man who put him in power.