Former President Donald Trump recently proposed that the president should have a role in setting interest rates, which are currently controlled by the Federal Reserve. Trump stated during a press conference at his Mar-a-Lago resort, “I feel the president should have at least [a] say in there. I think that in my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”
This idea was met with opposition from economists across the political spectrum.
They warned that any president would likely seek low interest rates to boost short-term economic growth, risking runaway inflation that could cause significant economic damage long after the president has left office. George Selgin, senior fellow and director emeritus at the Cato Institute, said, “It’s an absolutely bad idea. Presidents are known to be very shortsighted when it comes to monetary policy.
Trump advocates presidential say in Fed
They’re happy to try and take advantage of a temporary boost that easy money can give to economic activity and downplay or overlook the longer-run consequences, which can include inflation getting out of control.
Paul Wachtel, a professor of economics at New York University, agreed, stating, “I can’t think of anything that economists across the spectrum agree upon more than the importance of central bank independence.”
The Republican National Committee (RNC) blamed the Biden administration for the recent rise in inflation, which led the Fed to raise interest rates. RNC spokesperson Anna Kelly said, “The president’s policies already affect interest rates — the failed Harris-Biden economic agenda has led to the fastest increase in mortgage rates since 1981.”
Trump’s proposal comes as the Fed has kept interest rates at their highest level in more than two decades to combat inflation.
However, critics point to the high inflation of the 1970s and 1980s, which was partly attributed to President Richard Nixon’s pressure on the Fed to cut rates before the 1972 election. Mark Zandi, chief economist at Moody’s Analytics, warned, “Allowing the president, any president, to help set monetary policy would eventually wreck the U.S. economy.”
While the Fed is not completely independent from the government, with the chair appointed by the president and confirmed by the Senate, its independence is seen as crucial. Selgin noted, “Precisely because it’s so limited, it’s important to keep as much of that independence as exists.”
Vice President Kamala Harris, the Democratic presidential nominee, disagreed with Trump’s proposal, stating, “The Fed is an independent entity and as president, I would never interfere in the decisions that the Fed makes.”
Fed Chair Jerome Powell emphasized the central bank’s commitment to conducting its business in a nonpolitical way, saying, “We never use our tools to support or oppose a political party, a politician, or any political outcome.
The bottom line is, if we do our very best to do our part and we stick to our part, that will benefit all Americans.”
