Not this again.
Faced with any sort of self-inflicted crisis, Trump cycles through a series of scapegoats. Among the usual boogeymen (and boogeywomen): immigrants, China, NFL players, Hillary Clinton, House Democrats.
But lately — and alarmingly, for anyone who cares about the long-term health of the U.S. economy — the Federal Reserve has entered the rotation with greater frequency.
On Monday, in a rambling, petulant interview on CNBC, Trump once again lambasted the U.S. central bank, which he called “very destructive.”
“We have people on the Fed that really weren’t, you know, they’re not my people,” he complained, despite the fact that the people on the Fed are quite literally his people. As in, he formally nominated almost all of them: Four of the five sitting Fed board governors were Trump picks, including Fed Chair Jerome H. Powell, who was first appointed to the board by President Barack Obama and then elevated to chair by Trump.
What Trump meant, of course, is that his “people” haven’t shown loyalty to him personally; rather, they are making policy decisions based on their congressionally determined dual mandate, which is stable prices and maximum employment. He contrasted U.S. central bankers’ behavior to that of their Chinese counterparts, who he said always obey Chinese President Xi Jinping.
“He can do whatever he wants,” Trump said enviously. “They devalue, they loosen, or you would just say they pump a lot of money into China, and it nullifies to an extent, not fully — it nullifies the tariffs.”
This is not the first time Trump or his surrogates have argued that the Fed should ditch its legislative mandate in the service of helping the president manage trade (specifically, by cutting rates). Nor is this the only way in which Trump has tried to blame the Fed for, at the very least, insufficiently backstopping his misguided policies.
When stock markets do stomach flips in response to his trade antics, Trump also frequently scapegoats the central bank. For instance, during his recent trip to Japan, Trump — in between batting his eyes at North Korean dictator Kim Jong Un and insulting his Japanese hosts — found time to bash the Fed.
“The stock market, as high as it’s been, would have been at least, I think, probably anywhere from 7,000 to 10,000 points higher, but they wanted to raise interest rates,” Trump told an audience of Japanese business leaders. “You’ll explain that to me.”
So, umm, there are a bunch of things wrong with these comments. First and foremost is that Trump said anything publicly about the Fed, period.
For decades, the White House has had a policy to never, ever publicly comment on monetary policy. That’s because — as other countries such as Argentina and pre-euro Italy have amply illustrated — the central bank needs to be politically independent in both practice and perception to function. For prices to remain stable in the long run, the public needs to genuinely believe that the central bank will be willing to do politically unpopular things (sometimes referred to as “taking the punch bowl away”) when economic conditions warrant.
Then there’s the actual substance of Trump’s critique, that the Fed should be cutting rates right now.
Once again, the Fed’s congressionally set dual mandate is maximum employment and stable prices. It is not — despite Trump’s insistence otherwise — maximum stock market values and helping the president gain leverage in his ill-advised trade wars.
Normally, threats to Fed independence appear motivated by the perception that the Fed has overstepped its ambit and ought to stick to its knitting; instead, Trump is arguing that the Fed ought to torch the knitting altogether and adopt new hobbies.
There is also, of course, some tension between Trump’s claims on the one hand that the economy and stock market have been fundamentally, magically transformed by Trump administration policies, newly endowed with supernatural strength that will supercharge gross domestic product growth and markets indefinitely; and on the other hand, that the economy is so fragile that a measly quarter-percentage-point rise in interest rates could destroy it. Either the economy is going gangbusters and we shouldn’t fear a modest rate hike, or the economy is weaker than it appears and we should. Not that consistency was ever Trump’s strong suit.
In any case, the business cycle will turn at some point, as it always does. That’s why it’s called a “cycle,” after all. And if it happens while Trump is still in office, well, he’s already laid the groundwork for scapegoating, discrediting and perhaps fully dismantling a critical U.S. institution just when we’ll need it most.