It’s routine now for President Donald Trump to hector the Federal Reserve and its chair, Jerome Powell. But it’s no less troubling every time Trump does it, especially since Trump’s insults are getting lower and more ridiculous.
Trump this week said the Fed is acting like a “stubborn child” by not cutting interest rates on his command. The Fed “blew it,” Trump said, because overstimulating the economy when the labor market is strong could have boosted growth to 4% and added thousands of points to the Dow Jones stock index.
Trump went further by saying he’d rather have Mario Draghi, head of the European Central Bank, running the Fed than Powell. Draghi hasn’t asked for the job and probably wouldn’t take it if Trump offered, but Trump likes Draghi because he seems more willing to ease monetary policy than Powell. Trump still insists, “I have the right to demote [Powell].”
This is all absurd. If Trump were really able to politicize the Fed, and get it to do his bidding, it would probably backfire, because investors would lose confidence in the one institution they need most during a crisis. Trump also oozes insecurity with every Powell insult, not confident, apparently, in the power of his own policies to boost the economy. For these reasons, the Trump-o-meter this week reads WEAK, the third lowest rating.
Trump needs Powell as an ally
Powell pushed back against Trump this week, starting a speech in New York by insisting “the Fed is insulated from short-term political pressures. He shouldn’t have to say this, of course. Investors have enough questions about whether the Fed is getting policy right without worrying that a combustible president might be interfering with its decisions.
[Check out the Yahoo Finance Trumponomics Report Card.]
Two ironies are unmistakable. First, Powell is the one guy with some ability to bail Trump out if the economy gets in trouble and voters blame him. If that comes to pass — not likely but certainly possible by Election Day, 16 months from now—Trump will need Powell’s help. Powell would probably do what’s best for the country, and cut rates — instead of keeping them high to settle a political score with Trump. Still, Trump is making an enemy of somebody he could soon use as an ally.
The other irony is that Trump may get his rate cuts — because of his own ineptitude. Powell signaled in his New York appearance that Trump’s trade dispute with China has caused trouble in recent weeks that could force the Fed to cut interest rates sooner than it otherwise would. It’s even possible Trump will goad the Fed into cutting rates with more damaging trade moves that hurt the economy just enough for the Fed to move. What will Trump say about Powell then? “Atta boy” has a fitting ring to it — insincere and condescending.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman