FacebookTwitterRedditEmail

Trump Does the Unthinkable: He Criticizes the Fed

Much of the business press has been in an uproar because Donald Trump has criticized the Fed’s policy of raising interest rates. Trump complains that interest rate hikes will slow the economy and increase the trade deficit by raising the value of the dollar.

The business press is outraged not necessarily because they disagree with what Trump says (although many surely do) but they argue it violates some fundamental principle of government for the president to talk about the Fed. The outraged reporter gang might want to study up some on the meaning of democracy.

First of all, one will be hard-pressed to find any written law or constitutional principle that suggests that it is inappropriate for the president or any politician to talk about Fed policy. Robert Rubin, President Clinton’s Treasury Secretary was and is fond of saying that presidents and other political figures should not talk about the Fed.

In this respect, it is worth noting that Robert Rubin was co-chair of Goldman Sachs before joining the Clinton administration and then went Citigroup after leaving his post as Treasury Secretary. Rubin pocketed more than $120 million for his years at Citigroup. Citigroup was at the center of the housing bubble and would have gone bankrupt without massive government aid in 2008–2010.

This is worth mentioning in the context of politicians talking about the Fed because as it stands now, the Fed tends to be overly responsive to the concerns of the financial industry. Its structure gives the industry a direct voice in the Fed’s conduct of policy. It is understandable that flacks for the industry would not like to see its cozy relationship with the Fed threatened by input from the larger society, but it is difficult to see why anyone who believes in democracy would share this view.

There is an issue as to whether we want to see the president or members of Congress directly setting interest rates. My answer would be no in the same way that we would not want the president or members of Congress to decide which drugs get approved for public use. It is appropriate that this authority rests with experts at the Food and Drug Administration (FDA).

Nonetheless, it is the responsibility of the Congress and the president to monitor the FDA. If it went five years without approving any new drugs or began approving drugs that led to a surge in illnesses and death, it would absolutely be the responsibility of Congress and president to determine how the FDA was exercising its responsibilities.

In the same vein, the Fed is charged with maintaining full employment and price stability. If it fails badly in meeting these targets, then it certainly is reasonable for political figures to be raising questions about the conduct of its policy. The Fed’s structure guarantees it a high degree of independence from immediate political pressures, so no one at the Fed has to worry about losing their job because Donald Trump or a powerful member of Congress is unhappy with their actions.

In terms of the specifics of the complaints, Trump does seem confused. While I would agree that the rate hikes do needlessly slow the economy and put upward pressure on the value of the dollar relative to other currencies, the latter was actually an implicit goal of his tax cut.

The argument for a corporate tax cut was that it would increase incentives to invest in the United States rather than overseas. This means that both US corporations would invest more money domestically and foreigners would also look to invest in the United States.

Reducing the outflow of investment dollars and increasing the inflow from abroad would be expected to raise the value of the dollar. Less supply of dollars and more demand for dollars means a higher price of dollars measured in foreign currency. This would mean a larger trade deficit, but that it is just a logical implication of an increased inflow of foreign capital.

I know Kevin Hassett, President Trump’s chief economic adviser. He would be quite capable of explaining this point to the president if he would take a few minutes to pay attention. (Of course, we are not actually seeing any uptick in investment, the bulk of the tax cut seems to be going into shareholders’ pockets, so Trump may not have to worry about this story after all.)

So long and short, folks in the media should get over their hysteria about Trump criticizing the Fed. (Really folks, at this point in the Trump administration, criticizing the Fed is what gets you up in arms?) He does have a partially valid point about rate hikes slowing the economy, but he seems confused about the factors that affect the value of the dollar.

This column originally appeared on Beat the Press.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

bernie-the-sandernistas-cover-344x550
Weekend Edition
September 13, 2019
Friday - Sunday
Paul Street
The Age of Constitutional Coups
Rob Urie
Bernie Sanders and the Realignment of the American Left
Anthony DiMaggio
Teaching the “War on Terror”: Lessons for Contemporary Politics
Jeffrey St. Clair
Roaming Charges: They Are the Walrus
T.J. Coles
Jeremy Corbyn: Electoral “Chicken” or Political Mastermind?
Joseph Natoli
The Vox Populi
Sasan Fayazmanesh
The Pirates of Gibraltar
John Feffer
Hong Kong and the Future of China
David Rosen
The Likely End to Roe v. Wade?
Ishmael Reed
When You Mess With Creation Myths, the Knives Come Out
Michael Hudson
Break Up the Democratic Party?
Paul Tritschler
What If This is as Good as It Gets?
Jonah Raskin
Uncensored Tony Serra: Consummate Criminal Defense Lawyer
Ryan Gunderson
Here’s to the Last Philosophes, the Frankfurt School
Michael T. Klare
The Pompeo Doctrine: How to Seize the Arctic’s Resources, Now Accessible Due to Climate Change (Just Don’t Mention Those Words!)
Luke O'Neil
I Would Want To Drink Their Blood: God Will Punish Them
Louis Proyect
The Intellectual Development of Karl Marx
Tom Clifford
How China Sees the World
Kelsey Hawkins-Johnson – Negin Owliaei
Who’s Burning the Amazon?
Yasin Khan
Rideshare Drivers are Employees, Not Contractors
Ralph Nader
Big Business Lies Taught a Watchful Donald Trump
Binoy Kampmark
The Sacking of John Bolton
Andrea Maki
Wild Love Preserve Founder: Our Path Forward
Jeremy Kuzmarov
The War in Eastern Ukraine May be Coming to an End But Do Any Americans Care?
Tim Davis – Stan Grier
Protect the Sacred Grizzly Bear, Follow Those Who Know Grandmother Earth
Clark T. Scott
Super-Delegated and Relegated
Jim Britell
Lessons From America’s Greatest Grassroots Campaigns 
Howie Hawkins
Workers Need More Rights and Economic Democracy
Ramzy Baroud
‘Justice is Indivisible’: Screams of Israa Ghrayeb Should Be Our Wake-up Call
Jill Richardson
It’s Not About Your Straws and Your Light Bulbs
George Wuerthner
Montana’s Wilderness Deficit
Colin Todhunter
Officials Ignore Pesticides and Blame Alcohol and Biscuits for Rising Rates of Disease
Volker Franke
Me First and the Loss of Compassion
Adolf Alzuphar
Why is the Left Without a Single Elected Official in LA?
Kim C. Domenico
All We Are Saying, Is Give Peace A Chance (Bring It Home!)
Jennifer Matsui
The End of Aquarius and The Dawn of a Death Star: Once Upon a Time in Hollywood
Missy Comley Beattie
Never Forget
James Haught
Prodding ‘Nones’ to Vote
David Swanson
For the First Time in My Life I’m Against Impeaching the President
Nicky Reid
Yemen as Arabian Vietnam
Kenn Orphan – Phil Rockstroh
Bearing Witness at Aeon’s End: the Wound Becomes the Womb
Fred Gardner
Homage to the Tabloids
Yves Engler
RCMP Attempt to Silence Critics of Trudeau Foreign Policy
Stephen Cooper
Hempress Sativa: “Rastafari Should be Protected”
David Yearsley
Joie-de-Job: Staying High, at Work
FacebookTwitterRedditEmail