President Trump attacked the Federal Reserve on Thursday saying that he disagreed with a number of policy decisions made by the central bank and its chairman Jerome Powell. Powell was nominated to the position by Trump just a few months ago. The president said that he didn’t “necessarily” agree with the two interest rate hikes so far this year. He added that he was not thrilled by the policy direction of the Federal Reserve arguing that all time the rates have been going up. Nonetheless, the president said that he will not interfere, and will let Powell and his team do what they think is best.
The markets didn’t respond well to Trump’s comments with the Dow Jones losing 100 points. The dollar also took a tumble but it recovered later in the day. The White House released a statement shortly after Trump’s comments. The statement noted in part that the president respected the independence of the Federal Reserve and that he considered the chairman of the Federal Reserve board a very good man. The statement also said that Trump was not in any way trying to interfere with the work of the central bank or its decisions. It ended by adding that the president has always expressed his concerns over the rate hikes and the comments made on the CNBC interview were simply a reiteration of his position.
The Federal Reserve is perhaps one of the most independent government agencies in the US. The work that it does is very sensitive and as such, it has always been in the best interest of Americans to ensure it doesn’t face any political pressure. Although Trump’s comments are not actually pressure, this is one of those rare moments when a sitting president has directly criticized the work of the Federal Reserve.
The board chairman could also be heading in a direct confrontation with the president after he told the Senate Banking Committee that countries without tariffs have usually grown faster. Powell’s statements come at a time when the Trump administration has imposed tariffs on a number of products including steel and aluminum. The president has also been considering additional tariff measures against the EU and China.
There’s no way of knowing whether Trump’s latest criticism of the Federal Reserve had anything to do with Powell’s comments but even then, it’s clear that the two aren’t on the same page regarding crucial economic issues. In his first five months as the chairman of the Federal Reserve, Powell has hiked interest rates twice. However, this was clearly anticipated.
The Federal Reserve had said earlier this year that it was looking at four interest rates hikes in 2018 so there could still be another two hikes on the way before the year is out. In addition to this, before his confirmation, it was widely believed that Powell would follow the same policy direction of his predecessor Janet Yellen. During Yellen’s tenure, there were a number of rate hikes too. Trump’s comments will definitely not change the policy direction the Fed will be taking this year but they may raise questions about the president’s respect for independent institutions.