Wednesday, October 24, 2018

Trump Blasts Fed Chairman Jerome Powell to Wall Street Journal

President Trump escalated his attacks on Federal Reserve Chairman Jerome Powell on Tuesday. In true monetarist Keynesian-style, Trump blamed Powell for threatening U.S. economic growth by raising interest rates.

In an interview with The Wall Street Journal, Trump said he was making clear he was intentionally sending a direct message to Powell that he wanted lower interest rates.

“Every time we do something great, he raises the interest rates,” Trump said, adding that Powell “almost looks like he’s happy raising interest rates.”

Trump said of Powell, “He was supposed to be a low-interest-rate guy. It’s turned out that he’s not.”

Trump also said, “And Obama — remember this, it’s very important — Obama had zero interest,”

He also acknowledged to WSJ the so-called independence of the Fed, though the independence is largely a myth.

Indeed, former Fed chairman Paul Volcker writes in his soon to be published memoir how the Reagan administration tried to muscle him on interest rates.

Andrew Ross Sorkin informs:
The memoir is at times a dishy tale of Mr. Volcker’s years in Washington. For example, while President Trump has complained in recent months about the Fed’s plan to raise interest rates, he isn’t the first to try to influence the independent Federal Reserve. Mr. Volcker recounts being summoned to meet with President Ronald Reagan and his chief of staff, James Baker, in the president’s library next to the Oval Office in 1984.

Reagan “didn’t say a word,” Mr. Volcker wrote. “Instead Baker delivered a message: ‘The president is ordering you not to raise interest rates before the election.’” Mr. Volcker wasn’t planning to raise rates at the time.

“I was stunned,” he wrote. “I later surmised that the library location had been chosen because, unlike the Oval Office, it probably lacked a taping system.”
All this said, it is clear that Trump is far from an anti-Fed guy. He rather wants the Fed to be more aggressive in manipulating interest rates downward. He is doing this, it should be noted, at a time when price inflation is starting to accelerate. If the Fed buckles to Trump's desires the price inflation repercussions are likely to be serious. Nixon muscling Fed chairman Arthur Burns comes to mind.

From the Journal of Economic Perspectives:
Evidence from the Nixon tapes, recently made available to researchers, clearly reveals that President Nixon pressured Burns, both directly and indirectly through Office of Management and Budget Director George Shultz, to engage in expansionary monetary policies prior to the 1972 election.
When Burns became chairman of the Fed in 1970, price inflation as measured by the consumer price index was at 5.9%, when he left in 1978, it was 8.9%


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