Donald Trump said he would like a “say” in setting interest rates if he is reelected. The presidential candidate made these comments during a news conference at his Mar-a-Lago club in Florida. Trump’s allies have floated ideas in recent months that could undercut an independent Federal Reserve.
I sure was appalled at how bad an idea it was. A president’s got a lot of
things to do at any given moment and is actually much less close
to the economy than the 19 Fed board members and presidents. https://t.co/UuHrM1p3VE— Lawrence H. Summers (@LHSummers) August 9, 2024
They aim to have the president play a role in setting interest rates. Trump said he thinks he has the authority to fire the Federal Reserve chair.
Vance backs Trump on the notion the president should have a say in interest rates
Calls it a “fundamentally political” decision
— Gram Slattery (@G_Slattery) August 11, 2024
He also offered some new criticism of Federal Reserve Chairman Jerome Powell, saying Powell and his colleagues have “gotten it wrong a lot.”
Trump acknowledged a rocky relationship with Powell, whom he elevated to Fed Chair in 2018.
The President and the Senate of the United States can and should influence the monetary policy rule, through appointments. But meeting-to-meeting monetary policy decisions should be left to the Fed. Rightly blame any departure for serious future inflationhttps://t.co/qMAQ0SYFbM
— Miles Kimball (@mileskimball) August 10, 2024
More political control over monetary policy superficially seems bad, but this is gold. https://t.co/BGC8W9DTDM pic.twitter.com/4tQTpvohOL
— Tom Davidoff (@TomDavidoff) August 11, 2024
He often weighed in to pressure Powell to lower rates while he was president and even contemplated firing Powell before deciding against it. Republican vice presidential nominee JD Vance supported Trump’s suggestion that presidents should have more control over U.S. monetary policy. Vance said, “The political leadership of this country should have more say over the monetary policy of this country.”
Bank of America CEO Brian Moynihan raised concerns about such a major change.
He suggested that economies with independent central banks tend to perform better. Vance also addressed Minnesota Gov. Tim Walz’s military record.
Walz, who served 24 years in the Army National Guard, once referred to carrying weapons “in war,” though he never served in an active war zone. The Harris campaign clarified that Walz misspoke. Vance dodged questions about his position on an upcoming Florida referendum that would repeal Republican-passed abortion restrictions.
Trump’s push for controlling interest rates
He stated that Trump believes reproductive rights decisions should be made at the state level. During Vance’s Senate campaign in 2021, he made a controversial remark about Democrats being “childless cat ladies,” which included a jab at Harris and Buttigieg.
Vance defended his past comments, explaining that they were meant to spark a serious debate about “pro-family” policies. Buttigieg countered Vance’s remarks, stating that Vance lacks a positive vision for the country and tends to focus on disparagement. The Fed was created as an independent entity more than a century ago, designed to be nonpartisan to ensure long-term economic stability.
However, the Republican nominees for 2024 are challenging this norm. Vance attributes Trump’s stance to a commitment to democracy, although Trump himself simply said the President should have more influence over the Fed because he has “made a lot of money” and has “better instincts” than Powell. Across the world, interest rates are largely set by autonomous central banks with the goal of controlling inflation and/or maximizing employment.
Every G7 nation, for example, has an independent body deciding its base rate. The risk of setting interest rates via an election is that during periods of inflation, the public might refuse to vote for necessary increases in interest rates, even though such measures are essential to rebalance supply and demand. The White House published an analysis on the importance of the Fed’s independence, emphasizing that a central bank’s credibility is bolstered by its independence.
“When credibility is undermined by political influence, people, firms, and others who set prices are less likely to believe the central bank’s commitment to lower inflation, which can induce higher inflation,” the report stated. Wall Street analysts haven’t lost faith in the Fed’s credibility yet. Paul Donovan, chief economist at UBS Global Wealth Management, commented, “It may well be that markets choose not to price the risk of Fed independence being undermined.
Investors seem to have been inclined to dismiss Trump policies with more extreme economic outcomes as not being serious. If there were evidence that Trump were serious about these policies, markets would probably react.”
The debate over the Fed’s independence continues to be a critical issue as the 2024 election approaches.
