Attacks on Powell don't make sense

COMMENTARY

President Donald Trump isn't really feuding with Federal Reserve Chair Jerome H. Powell, even though the press keeps saying he is. Feuds have two sides. Trump and his allies have launched one attack after another on Powell - calling him "a moron" and "a political hack," threatening him with criminal prosecution - while he just takes it.

Some of the complaints about Powell are obviously pretextual: It is impossible to believe that Trump is worked up about cost overruns in renovating the Fed's headquarters. But even the sincere arguments for firing Powell before his term ends are mostly nonsense.

The claim that Powell helped the Democrats last year by cutting interest rates but now refuses to cut rates for Trump, for example, gets both the economics and the timeline wrong.

The Fed has cut rates twice since Trump won the 2024 election. They are lower than they were for all of 2023 and most of 2024.

Trump keeps saying that Powell is costing taxpayers billions in interest payments by refusing to drop rates further. But the Federal Reserve does not have direct control over the interest rates that the federal government pays on its debt. If the Fed were to reduce the rate within its control and this move caused higher inflation - the principal fear behind the Fed's reluctance to take this step - bond buyers might well demand higher interest rates to compensate for it.

Trump's conduct toward the Fed could easily lead bond buyers to demand higher rates still.

Firing Powell before his term ends might be illegal and would certainly increase market perceptions of the risks of instability in economic policy. Even letting Powell serve out his term and then replacing him with someone seen as pliant to Trump runs a chance of raising expectations for future inflation, over and above what a single rate cut would do.

If Trump really worries about federal interest payments, which is reasonable enough, he should submit budgets that move closer to balance. He has done the opposite. He is vindicating one of the warnings debt scolds have been issuing for decades: that excessive borrowing would tempt the federal government to follow inflationary policies.

Another criticism of Powell from Trump's allies is that he has strayed outside his lane by undermining the president's trade policies. Powell has suggested that Trump's tariffs will increase prices through several routes. What concerns him most is the possibility that the tariffs will increase the amount of inflation that the public expects, and that this expectation will become self-fulfilling. This possibility has contributed to the Fed's hesitation about cutting interest rates.

But that is the Fed staying in its lane. If the political branches have acted to make some goods more expensive than others, the Fed can't stop them and should not try. What the Fed must do, on the other hand, is keep the overall level of prices rising at a slow and predictable rate. Keeping inflation expectations low and stable is an important way it does that job, which means its interest rate policy has to take those expectations into account.

White House adviser Peter Navarro says that Powell does not appreciate how "Trumpnomics" will bring about noninflationary economic growth, and that's why he is keeping interest rates too high. But that argument is backward.

If U.S. growth prospects really are rising fast, that's a reason for higher interest rates: It implies higher investment demand.

If you were trying to force the Trump administration's line on Powell to make some kind of sense, it would be that it's trying to hedge its bets politically: Take credit for a strong economy if it materializes, blame Powell if it doesn't.

But that's a difficult strategy to execute. The message from Trump is instead just self-contradictory: He is giving us a gangbusters economy that … desperately needs stimulation by the Fed.

Ramesh Ponnuru is the editor of National Review and a fellow at the American Enterprise Institute.