While the Fed has reversed its interest rate hike path, Trump still has the agency in his sites, now blaming it for shaving as much as 10,000 points off the stock market, and calling Fed Chair Jerome Powell’s policies “killer”. In a Sunday tweet, Trump suggested the Fed was failing at its job and taking the stock market down with it:
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But let’s read between the economic-political lines here: Quite a lot is at stake right now in terms of who is going to lead the Fed, and Trump’s choices have come under severe scrutiny.
There’s also a fair amount of bad blood boiling in the aftermath of the rate hike battle. Just because the Fed reversed its rate hike plans for this year, doesn’t mean it’s message was favorable to the White House.
In March, the Fed downgraded its estimate for U.S. economic growth to 2.1 percent, from 2.3 percent in December. So there won’t be any more rate hikes this year, but it’s only because economic growth is slowing. The message the Trump administration wanted to hear was one that supported its own take on the economy, and--most desirably--one that didn’t contradict its own growth estimates.
But if the Fed’s policies cheated the stock market out of 5,000-10,000 points, it’s also important to consider that Trump’s own attacks on the Fed have also helped unsettle financial markets and send them tumbling. As much as the stock market hates rate hikes from the Fed, it also hates to think that the central bank might not be as independent as it should be.
Trump’s latest (in a series of) attacks on the Fed follow Powell’s own statement to Democrats last week to the effect that he would not bow to political pressure.
It’s also notable that Trump is having trouble with Hermain Cain and Stephen Moore--two figures tapped for open slots at the Fed. So negative attention for Powell is in some way intended to garner support for Cain and Moore by making the current Fed chair the market’s bogeyman.
There are two open board slots in the Fed, and Trump is trying to stack it with allies who will do his bidding.
Herman Cain is a former Republican presidential candidate, whom four of his own party members have already rejected out of hand, saying they would not vote to confirm the pick. Cain is a former board member of the Kansas City regional Fed, but he’s also got sexual harassment allegations dogging him, though he has denied those.
Then there’s Stephen Moore, an economic commentator who used to serve on the Wall Street Journal editorial board and as an analyst for CNN. He has a track record of being bending to pressure, according to some.
On Monday, Treasury Secretary Steven Mnuchin chimed in about the questions Trump’s tweets have opened up with respect to the Fed’s independence. While Mnuchin refrained from commenting on Trump’s tweets, he did note how important it is for the market to see and feel a central bank that isn’t being hijacked by Washington.
"In my role as secretary, it is inappropriate for me to comment. I do think that the Fed independence is something that the world looks to, and I think that the dollar being the reserve currency is very important,” he told Fox News.
But it’s far from enough closure for those who are genuinely concerned that the administration is chipping away at Fed independence in the style of Erdogan’s Turkey.
By Fred Dunkley for Safehaven.com