Donald Trump’s feud with the Federal Reserve is getting more heated and bizarre by the week. Last we left this saga, the president had suggested that our country’s central bankers had “gone crazy” and “loco” with their desire to hike interest rates. Now in an interview airing Tuesday on Fox Business, the president tells host Trish Regan that the central bank is now the “biggest threat” to his presidency. Here’s the exchange:
Trump: My biggest threat is the Fed is raising rates too fast. And it’s independent, so I don’t speak to ‘em. But I’m not happy with what he’s doing. Because it’s going too fast. Because if you look at the last inflation numbers, they’re very low.
Regan: But you put him there! I mean, you, you, you…
Trump: I did…
Regan: …you think about Janet Yellen and she was so dovish.
Trump: Can I be honest? I’m not blaming anybody. I put him there. Maybe it’s right, maybe it’s wrong.
Regan: What if he gets it wrong?
Trump: I put a couple of other people there I’m not so happy with too. But for the most part, I’m very happy with people.
Two things are true about this exchange. First, Trump may well be right about the Fed’s policy choices. Second, and more importantly, he has done absolutely nothing to pick more dovish leaders at the central bank, and therefore should not be permitted to shirk responsibility for its actions.
It’s not surprising that Trump is criticizing the Fed—at this point, that’s just his MO. It’s not even that shocking in the scheme of history: Until the 1990s, it wasn’t unheard of for the White House to take shots at the Fed chair, either publicly or in private. Trump has also said that he won’t try to fire Jerome Powell—legally, he probably can’t—and it’s not even clear all the carping will actually pressure the Fed’s decision makers. It might actually be counterproductive. The more moaning the bank’s officials hear echoing from 1600 Pennsylvania Ave., the more pressure they may feel to keep hiking in order prove their independence.
The president may be correct that the Fed is raising rates too quickly, and he’s certainly right about low inflation. The Federal Reserve’s preferred inflation index—known as core PCE—has only broken its 2 percent target once since 2014. Trump, might also be on point when he says that the Fed is the biggest single threat to his presidency. Powell and his colleagues are planning lots of interest rate increases over the coming year; if they tighten too fast, it could tank the economy, especially if it accidentally exacerbates other problems like trade conflicts or rising oil prices. Trump is actually offering a clear eyed assessment of a public policy issue and its political ramifications.
What’s strange is the way he’s acting utterly powerless about it. As Trump admits, he picked Powell as chair. With just a modicum of research he could have selected someone more likely to favor low interest rates. Keeping Janet Yellen around might not have been the right answer as Regan suggests—the ex-chair has actually sounded like a bit of a hawk lately—but Trump could have found someone better aligned with his own views of monetary policy. Meanwhile, Trump has nominated four individuals to fill vacancies on the Fed’s seven-member Board of Governors. They too have mostly been conventional moderates, not far from Powell’s own mold. Judging from Trump’s comments to Regan, he also seems to be unhappy with some of them. His one unconventional pick has been Carnegie Mellon economist Marvin Goodfriend, whose monetary policy beliefs are a little hard to categorize, but who took a hard, hawkish stance in 2011 by suggesting that the Fed needed to worry more about inflation despite the high unemployment rate.
Goodfriend, who was appointed last year, has run into trouble with the Senate, and he may never be able to get confirmed. This would seem like a good time for Trump to withdraw his nomination and replace Goodfriend with someone less apt to hike rates. And yet, he’s making no moves in that direction. Why not? Who knows.
Ultimately, Trump’s goal in criticizing the central bank seems to be distancing himself from any damage they inadvertently inflict on the economy. But the president has had the opportunity to pick a Fed board that would better reflect his own intuitions about interest rates. If his failure to do so backfires on the economy, he’ll deserve all the blame that inevitably comes his way.