Trump vs. the Fed
President Trump upended "long-standing White House protocol" by attacking the Federal Reserve's decision to raise interest rates
The smartest insight and analysis, from all perspectives, rounded up from around the web:
"Independence from presidential criticism has long been a hallmark of the Fed's existence," said Jim Tankersley at The New York Times. Last week, in a televised interview, followed by a flurry of tweets, President Trump upended "long-standing White House protocol" by attacking the Federal Reserve's decision to raise interest rates. With two increases this year, the Fed has hiked its short-term interest rate to 2 percent. It plans to raise rates twice more before year's end, to keep a lid on inflation and return interest rates, at historic lows since the 2008 bank crisis, back to normal levels. Trump believes the Fed's moves could "derail" the White House's efforts to spur the economy. Although the economy has momentum and unemployment remains low, wages are still stagnant. If the Fed raises rates too fast, it could halt growth. But if it moves too slowly, the economy "could overheat and ignite a rapid spiral of price increases," prompting a recession. "It's a delicate political and economic balance." Instead of chastising Jerome Powell, the Fed chairman he appointed himself, Trump should be thanking the Fed, said Caroline Baum at MarketWatch. The Fed's careful approach is designed to avoid "slamming on the brakes" when inflation accelerates, "sending the economy into recession just in time for the 2020 election."
Trump actually has a point, said Jordan Weissmann at Slate. His assertion that by increasing borrowing costs the Fed "is frustrating his efforts to juice the economy and wage a trade war using tariffs" is fairly accurate. Higher interest rates lead foreign investors to invest more in U.S. bonds, driving up the dollar. That makes imports cheaper, undercuts the impact of Trump's tariffs, and increases the trade deficit. Still, complaining about rising rates now is hypocritical of Trump, who slammed the previous Fed chair, Janet Yellen, for keeping rates low in 2016. Trump has "crossed a line," said Peter Conti-Brown at The Wall Street Journal. For central banks, "appearance matters as much as substance." The Fed's current policy of increasing rates is already a fraught process. But now, if the Fed does slow rate increases, the public will deem it "a Trumpian victory." And if it ends up raising rates faster, Trumpists will cry foul and declare war. "Either result would be devastating."
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Does Trump really want to control the Fed? No, said Tyler Cowen at Bloomberg, "in essence, Trump wants a fall guy." If his trade war "or just plain bad luck" rattles the U.S. economy, the Fed is a convenient scapegoat. Just remember, we've been here before, said Matt O'Brien at The Washington Post. Trump is by no means the first president to want the Fed to juice the economy. Leading up to the 1972 election, President Richard Nixon bullied then–Fed chair Arthur Burns into rate cuts. Nixon won, basking in the temporary glow of improved economic growth. But the economy was soon beset by out-of-control inflation, which lingered for a decade. When George H.W. Bush tried the same thing in 1992, Alan Greenspan's Fed "held firm," and Greenspan may even have avoided cutting interest rates to show that the Fed couldn't be pushed around. Unemployment stayed high, and Bush lost the election.
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
The art world and motherhood: the end of a final taboo?
Talking Point Hettie Judah's new touring exhibition offers a 'riveting riposte' to old cliches
By Chas Newkey-Burden, The Week UK Published
-
'Musk's reliance on China draws rising scrutiny'
Today's Newspapers A roundup of the headlines from the US front pages
By The Week Staff Published
-
Biba: the story of a 'legendary emporium'
The Week Recommends Brand's 60th anniversary is being marked with retrospective celebrating the 'iconic shop's cultural importance'
By Adrienne Wyper, The Week UK Published
-
Trump, billions richer, is selling Bibles
Speed Read The former president is hawking a $60 "God Bless the USA Bible"
By Peter Weber, The Week US Published
-
The debate about Biden's age and mental fitness
In Depth Some critics argue Biden is too old to run again. Does the argument have merit?
By Grayson Quay Published
-
How would a second Trump presidency affect Britain?
Today's Big Question Re-election of Republican frontrunner could threaten UK security, warns former head of secret service
By Harriet Marsden, The Week UK Published
-
'Rwanda plan is less a deterrent and more a bluff'
Instant Opinion Opinion, comment and editorials of the day
By The Week UK Published
-
Henry Kissinger dies aged 100: a complicated legacy?
Talking Point Top US diplomat and Nobel Peace Prize winner remembered as both foreign policy genius and war criminal
By Harriet Marsden, The Week UK Last updated
-
Trump’s rhetoric: a shift to 'straight-up Nazi talk'
Why everyone's talking about Would-be president's sinister language is backed by an incendiary policy agenda, say commentators
By The Week UK Published
-
More covfefe: is the world ready for a second Donald Trump presidency?
Today's Big Question Republican's re-election would be a 'nightmare' scenario for Europe, Ukraine and the West
By Sorcha Bradley, The Week UK Published
-
Xi-Biden meeting: what's in it for both leaders?
Today's Big Question Two superpowers seek to stabilise relations amid global turmoil but core issues of security, trade and Taiwan remain
By Harriet Marsden, The Week UK Published