Trump's plan to influence the Fed stirs controversy among economists
The Republican Party candidate for President of the United States suggested on Thursday that the head of state should have a say in decisions made by the central bank. One of the most critical points of Donald Trump's campaign is the interest rate level. Economists warn of the consequences.
6:41 PM EDT, August 9, 2024
"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," Donald Trump said, referring to the issue of interest rates in the USA.
As Reuters writes, this is the most unequivocal statement concerning the expected limitation of the independence of the American central bank if the Republican wins the presidential election again.
Additionally, in April, the Wall Street Journal reported that the Trump camp had prepared a solution in which the central bank would consult with the president on decisions regarding interest rates. Moreover, the White House would also have insight into the Fed's banking regulation proposals.
Economists fear a repeat of Nixon
"The Fed chair and the other six members of its board of governors are nominated by the president, subject to confirmation by the Senate. But the Fed enjoys substantial operational independence to make policy decisions that wield tremendous influence over the direction of the world's largest economy and global asset markets," Reuters points out. The agency also emphasizes:
Economists fear that implementing Donald Trump's plan could have similar effects to President Richard Nixon's actions in the early 1970s when he pressured Fed chair Arthur Burns, whom he had appointed.
The politician, disgraced by the Watergate scandal, influenced the head of the central bank to maintain an expansionary monetary policy before the 1972 elections despite inflationary pressure.
"By 1974, inflation was running above 12% and would remain a persistent problem for the next decade until it was brought under control by Fed Chairman Paul Volcker through crushing interest rate increases that caused two recessions in the early 1980s," writes Reuters.
The current Fed chair, Jerome Powell, has a term that ends in 2026, and his place on the central bank's board extends until 2028.
