Trump’s Arm-Twisting Of Fed Is What’s Truly ‘Loco’: Catherine Rampell
As stock markets plummeted last Wednesday and Thursday, Trump lashed out at the
"
While economists may disagree about the exact pace of interest-rate hikes, raising rates now — gradually, after keeping them at historically low levels for more than a decade — is hardly "loco."
We're in one of the longest expansions on record. Unemployment has touched 49-year lows. Inflation appears to be picking up. Plus, Trump recently passed
You know what is "loco," though? The fact that Trump thinks it's appropriate to arm-twist the Fed, whose political independence is supposed to be sacrosanct.
There's good reason to safeguard central-bank independence: It's that we don't want to turn into
As these economies have shown many times over, putting the money supply in political hands is disastrous.
Politicians are always tempted by easy-money policy, especially in an election year. Why? In the short term, at least, loose monetary policy can goose the economy. It squeezes out a little more growth, boosts asset prices (including stocks) and pushes down unemployment.
Which tends to be helpful for scoring votes. There's a trade-off, though.
Loose monetary policy can also lead to inflation, especially when the economy is already doing well. And inflation can be caused not just by policymakers actually printing money today, but also by the belief that they might do so in the future.
If the public doesn't believe the government is committed to keeping prices stable — because, say, an election is coming — businesses might start pre-emptively jacking up prices. Which leads customers to go out and buy up products before prices rise further, which can lead to further price hikes, and so on.
In other words, an inflationary spiral.
The solution is to shield decisions about the money supply from day-to-day politics. In
As an independent institution, whose officials are nominated by the president but can be removed only for cause, the Fed is free to do unpopular things, even in election years: to "take away the punch bowl" just when the party gets going — that is, to prevent the economy from overheating.
Or even to cause some near-term pain in service to longer-term price stability, as then-Fed Chairman
But for the most part, for the past several decades, administrations have maintained a policy of not commenting on monetary policy. They understood that raising even the specter of a compromised Fed was just too risky.
Trump clearly has no such understanding. He wants more punch for everyone, at least while he's president, and he wants to be the one who serves it. In fact, in May, former Fed Gov.
While the Fed has undoubtedly made mistakes in the past, it has spent decades cultivating its reputation for independence, and independence has been crucial to its ability to make a credible commitment to stable prices and thus the long-term health of the economy. Trump would do well to remember that reputation — fairly or not — is always easier lost than won.
Investors Not Sweating Midterm Elections, Survey Finds
Gov. Scott Issues Updates on Hurricane Michael Response
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News