Another day, another female public servant’s integrity impugned by Donald Trump.
Trump laid into Federal Reserve chair Janet Yellen on CNBC this morning, saying the Fed is not independent and that Yellen should be “ashamed” of manipulating the economy to bolster president Barack Obama’s legacy.
“I have no doubt” that interest rates are being kept down to protect Obama, Trump said, suggesting that the Fed would raise them to crash the stock market if he were elected.
This level of conspiracy theorizing is the norm for Trump’s campaign, but it is a surprising departure for presidential candidates in the modern era, who tend to avoid criticizing the Fed in order to protect its reputation as an independent body.
Murmurs of the Fed working on an incumbent’s behalf are common; since most efforts to boost the economy boost the incumbent, false positives are easy to find. The last time anyone had evidence of a truly biased Fed was when Richard Nixon pressured then-Fed Chair Arthur Burns to cut rates ahead of his 1972 re-election campaign, exacerbating stagflation.
Since Fed Chair Paul Volcker cleaned up that mess, bipartisan service by long-time Republican Fed chairs Alan Greenspan (under Ronald Reagan, George H.W. Bush, Bill Clinton and George W. Bush) and Benjamin Bernanke (under Bush and then Obama) has put paid to most politicization rumors.
Contrary to what the Fed might be doing to boost Obama’s legacy or Hillary Clinton’s campaign, the institution began tightening rates last year over the objections of many progressive economists. The Fed’s policymaking board faces just one question ahead of the next meeting on Sept. 20: How quickly to continue their exit from the low-interest rate policies used to boost growth after the 2008 financial crisis?
This year, no increases have been seen, in the face of fairly slow US growth and international economic tension following the UK Brexit vote. US unemployment remains low, but the labor market has soft patches, including large numbers of long-term unemployed and low labor force participation, that along with little increase in inflation, suggest time before another hike. A “serious discussion” of what to do lies ahead, according to Atlanta Fed Chief Dennis Lockhart.
As the Federal Reserve and US monetary policy have become increasingly visible in the wake of the financial crisis, critics on the left and right are pushing for structural reforms and more transparency about how it makes policy, including new ideas about how to set interest rates.
But there will be no such serious discussion in the Trump camp. His personal attacks will resonate with many in the Republican fringe who see the Federal Reserve as a cabal of nefarious economic oppression, usually with plenty of anti-semitism in the mix.
If there’s any silver-lining to Trump’s comments, it’s that candidates usually try to avoid weighing in on the Federal Reserve to avoid moving markets. Trump’s attacks don’t seem to have moved anything, so at least we know how seriously investors take him.