Randall Forsyth of Barron’s places President Trump’s recent criticism of Federal Reserve policy in historical perspective.
Trump’s Fed bashing went against recent administrations’ policy of maintaining respect for the central bank’s independence. But it was consistent with his inclination to criticize the Fed when he thought it wasn’t acting in his favor.
During the 2016 election campaign, Trump called himself a “low-interest-rate person”—not surprising, given he has also described himself as the “king of debt” for his proclivity to borrow heavily to fund his real estate operations. …
… The respect and even reverence for the Fed’s independence is a relatively recent state of affairs. Robert Rubin, Treasury secretary in the Clinton administration, established a policy of staying off the Fed’s turf while also declaring a “strong-dollar” policy, which was followed to varying degrees by the next two administrations.
That has been a relative exception, however. The tug-of-war between sound and cheap money has been ongoing throughout U.S. history, stretching even further back than William Jennings Bryan’s famous “Cross of Gold” speech in 1896. There would be other clashes later. Notably, both Lyndon Johnson and Richard Nixon tried to influence the Fed. …
… Greg Valliere, chief strategist at Horizon Investments, thinks criticism of the Fed could backfire. The current chairman, Jerome Powell, “is a savvy pro, resistant to political pressure—but he surely thinks about market perceptions,” Valliere wrote in a client note.
If the Fed raises rates twice more this year and three times in 2019, Powell might be criticized not only by Trump but also by liberal Democrats such as Elizabeth Warren and Bernie Sanders, senators from Massachusetts and Vermont, respectively. But if the Fed raises rates more slowly, the suspicion in the market could be that Powell was buckling under political pressure. “Regardless of what he does, his motives will now be questioned,” Valliere says.
