Donald Trump is “not thrilled” with Jerome Powell, the man he hand selected last year to chair the Federal Reserve. Those are the words he used during an interview with CNBC in July. And they’re the words he used again in an interview with Reuters, published Monday. “I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” he said.
The president isn’t just complaining to financial journalists. Trump also carped about his Fed chair at a recent fundraiser in Long Island where, according to the Wall Street Journal, he told attendees that he’d been assured by advisers that Powell would back “cheap money,” and that he was chagrined to see the central bank hiking rates instead. “That can only happen to Trump,” he reportedly said.
For once in his life, the president is even more right than he realizes. It would have been trivially easy for Trump to nominate a more dovish Fed chair better aligned with his own instincts on monetary policy. (“Hawkish“ central bankers are apt to raise interest rates, while “dovish” ones prefer to keep them low.) But Trump blew the call because he’s an incurious bullshitter who fails to do a modicum of basic homework before making major decisions, and is thus at the mercy of his advisers. While all presidents get advice from their advisers, and most presidents choose at least some officials who later go on to do things they don’t agree with, flubbing the Fed nomination in this way is indeed the kind of thing that could only happen to Trump.
Trump’s criticisms of the Fed are reasonably coherent. Powell and his colleagues at the Federal Open Market Committee are in the process of gradually hiking rates to prevent the economy from “overheating”—meaning that they want to keep it from growing so strongly that inflation suddenly leaps out of control. Their strategy is to raise rates a little bit at time now, so that they don’t have to hike drastically later should prices suddenly spike. This is not necessarily an absurd approach. After all, unemployment is quite low and the Fed’s preferred measure of inflation, the Core Personal Consumption Expenditures Index, is bumping around its 2 percent target. But there are also reasons to think that the Fed should just relax and let the economy rip for a while. Inflation has been well below its target for years, wages still aren’t growing that quickly, and the overall employment rate among working-age adults still has ample room to improve. The central bank seems to be pouring a thin stream of cold water on the economy while it’s still warming up. Or, as our President put it, “Every time you go up, they want to raise rates again.”
Trump is also peeved because he believes the Fed is undermining the U.S. in trade talks, when it should be doing its part to help. “We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,” a distinctly unthrilled Trump groused to Reuters. One can argue about whether it’s actually the Fed’s job to worry about trade talks with China (I would say it isn’t). But it’s true that by hiking rates, Powell & Co. have probably contributed to the rising value of the dollar, which has canceled out some of the impact of Trump’s tariffs by making imports relatively cheaper than they’d otherwise be.
But Trump should have expected all of this. After all, it didn’t take a mind-reader to figure out that this was what Powell would do as Fed chair—just a newspaper. Powell was a well-known entity. He had spent more than half a decade on the central bank’s board of governors, and was a firmly established ally of former Chair Janet Yellen. Everybody in Washington expected him to continue her strategy of gently normalizing interest rates over time, which is what he has basically done.
Picking a chair who would have raised rates even more slowly, or kept them even, would not have taken much work at all. Arguably, all Trump had to do was look at a picture. After each of its interest rate decisions, the Federal Open Market Committee—which the Fed chair leads—releases a chart known as the dot plot. It shows where each and every member wants to set the Fed’s benchmark interest rate over the coming years. Here’s what it looked like in late 2017.
If Trump wanted a dove leading his Fed, he just needed to glance at the chart, point at the lowest dot, and say “get me that guy.” It really would have been that simple. No pesky reading. No long briefings. Picture. Point. Done. Technically, the dots are anonymous. But James Bullard, President of the Federal Reserve Bank of St. Louis, has owned up to be being the man at the bottom. He is notoriously hesitant about raising rates, and would likely make Trump pretty happy as chair. (His views on regulation might not thrill the president, but hey, nobody’s perfect.)
But Trump didn’t consider Bullard, or any other true doves. Instead, his finalists were Powell and Yellen, who represented the moderate status quo, and two much more hawkish candidates—Stanford University Professor John Taylor and former Board of Governors member Kevin Warsh, both of whom spent the early years of the great recession fretting, incorrectly it turned out, that inflation was right around the corner and arguing that the Fed should hike rates faster. The same pattern has played out with Fed board nominations which, as Moody’s Analytics economist Adam Ozimek has noted, have so far included “two hawks, one unknown, and one moderate dove.” There’s no obvious rhyme or reason to Trump’s picks, and he doesn’t even seem to be considering the sort of central bankers he actually wants in control of monetary policy, just who his advisors put in front of him.
Whether or not Trump is right to be annoyed at the guy he chose to lead the Fed, there’s a lesson in all this: Sometimes, presidents need to know things in order to successfully execute their own agenda. Otherwise, they might not be thrilled with the results.