Fed’s heir apparent won’t let Trump influence policy
Donald Trump’s plan to strip the Federal Reserve of its political independence if he’s elected president won’t come without a fight.
Fed governor Christopher Waller, who is viewed by many as the most likely to replace Jerome Powell as Chairman, strongly opposes any political meddling with the central bank.
“If the president wants to complain about [monetary policy], he is free to do so just like everybody else,” Waller told the University of Notre Dame earlier this month.
“That doesn’t mean I have to listen or adjust policy to that, but he is entitled to every damn opinion he wants,” said Waller.
Creditnews reported in May that Trump’s political allies were drafting policy proposals that would give the president the ability to influence monetary policy.
In August, Trump confirmed his intent to reshape the Fed by saying, “I feel that the president should have at least a say” in setting interest rates.
“I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman,” Trump said.
Waller is an intriguing pick for Fed Chair, given that he’s one of only three Trump appointees currently with the central bank.
Before joining the Fed’s Board of Governors in 2020, Waller was a professor of economics and served as research director for the St. Louis Fed.
As Bloomberg reported, Waller has devoted a large portion of his career to defending central bank independence.
Fed independence isn’t taken lightly
The Biden administration has used Trump’s tumultuous relationship with the Fed to shore up support for central bank independence.
On May 24, the White House’s Council of Economic Advisers (CEA) published a blog titled, “The Importance of Central Bank Independence.” In it, the CEA stressed that only an independent central bank has the ability to control inflation.
This is why “nearly all advanced economies and many developing countries are now governed by independent central banks,” the blog read.
As Americans have no doubt observed, bringing down inflation is difficult and requires extremely unpopular policies. The Fed’s aggressive rate hikes in 2022 and 2023 made housing, auto loans, and even credit card loans more expensive.
If the central bank were swayed by politics, it may not be able to give the economy the tough medicine it needs.
The Fed does not want to be swayed by politics. In a July 5 report to Congress, the Fed emphasized “broad support” for central bank independence, calling this an “international norm.”
Less than two weeks after that report was released, Trump warned Fed Chair Jerome Powell not to cut interest rates before the November election.
The Fed disregarded that warning by voting to lower its benchmark rate by 50 basis points on Sept. 18. As Creditnews reported, it was the first 50-point rate cut since 2007.
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