When a President attacks a central bank head

"Donald Trump's attack on Jerome Powell is unprecedented."


During his 33 months as chief executive of the world’s most powerful country, Donald Trump has done and said things violative of the US Constitution, offensive to America’s culture and traditions and disruptive of the nation’s order and stability. One of the worst—and, one of the most recent—of Mr. Trump’s malfeasances relates to the decision-making process of the US’s central bank, the Federal Reserve System, popularly known as the Fed.

In recent weeks America’s president has been engaged in a running battle with the chairman of the Fed, Jerome Powell—his own appointee—over the US central bank’s posture on interest rates. Trump has been publicly pressuring Powell to use his influence as chief monetary policymaker to get the Federal Reserve Board (FRB) to add another interest rate cut to the two successive cuts put in place by the Fed during the past year. Powell has been at the receiving end of a steady stream of tweets and statements delivered in public gatherings and press conferences. Donald Trump has come very close to characterizing the Fed chairman as irresponsible and unpatriotic.

The current presidential onslaught against Powell is unprecedented. Never in the 105-year history of the Fed has the occupant of the White House attempted to influence Fed decision-making in so public and direct a manner. The Fed chairman doubtless did not expect to experience the current situation in his wildest dreams.

Jerome Powell, who presides over a Board made up of the presidents of the 12 Regional Reserve Banks, has been putting up a three-part defense against Trump’s brazen intrusion into Fed operations. One part is the statutory independence of the Fed. Another part is the current healthy state of the US economy: at 5.3 percent the unemployment rate is at its lowest level in several decades, more Americans are employed than ever before, the US economy lately has been growing at close to 3 percent and the inflation rate is historically low.

The third part of Fed chairman Powell’s defense against Trump’s onslaught relates to the efficacy of Fed interest-rate policy changes. To be able to nudge economic activity is the appropriate direction—upward, in a time of slowdown, or downward, in a time of exuberance—the Fed should have leeway to influence producers and consumers to make appropriate investment and consumption decisions, Mr. Powell argued. The Fed will have little leeway if interest rates are already at too low or too high levels, he said.

Considering the impact of interest-rate changes on consumers’ welfare, President Trump could be forgiven if his intrusion into Fed decision-making were motivated by high-minded considerations. But America’s chief executive was not being high-minded. The only motivation for his intrusion was politics—more specifically, his desire to protect his chances for reelection in the 2020 US election.

Donald Trump’s advisers are telling him—and he is apprehensive—that between now and the election’s approach America’s economic conditions may deteriorate and a recession might set in as 2020 progresses. Such a turn of events would seal the end of a Presidency that is currently under attack from virtually all sides.

Trump’s onslaught against him has placed Powell in a very awkward position. The Fed chairman cannot afford to have the American people see their central bank as a non-independent institution. But an honest change of Powell’s heart on the issue of interest-rate lowering could be seen by them as capitulation of the Fed to the White House.

The head of a country’s central bank—the chairman, in the US, or the government, in most other countries—is the face of that institution and is the individual to be addressed when issues of a monetary or financial character, such as interest rates or prices, arise. But Donald Trump forgot, or deliberately ignored, the fact that the FRB, or his country’s Monetary Board, is a collegial body and that the Fed chairman—in our case the Bangko Sentral ng Pilipinas governor—does not make decisions or set policies himself. Donald Trump was wrong in singling out chairman Jerome Powell for attack.

In every modern democratic nation there are public institutions that can be assailed with no irreparable damage done to the social fabric. The central bank—or whatever it is called—is not one of them. The independence of the central bank must be protected and defended at all times, and the head of that institution must never be attacked personally in connection with his work.

Topics: Donald Trump , Jerome Powell , Federal Reserve System
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