President Donald Trump criticized the Federal Reserve’s interest-rate increases, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the U.S. central bank.
“I’m not thrilled” the Fed is raising borrowing costs and potentially slowing the economy, he said in an interview with CNBC broadcast Thursday. “I don’t like all of this work that we’re putting into the economy and then I see rates going up."
The dollar relinquished gains from earlier in the day and Treasury yields dropped following the president’s remarks.
The Fed has raised interest rates five times since Trump took office in January 2017, with two of those coming this year under Chairman Jerome Powell, the president’s pick to replace Janet Yellen. In the interview, Trump called Powell a “very good man.”
Powell addressed Congress earlier this week and told lawmakers that “for now — the best way forward is to keep gradually raising the federal funds rate.” Fed officials have penciled in two more hikes this year.
Fed spokeswoman Michelle Smith declined to comment. Powell last week told American Public Media’s “Marketplace” program that the Fed has “a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns.”
It wasn’t the first time in history the Fed has faced pressure from a U.S. president. But the past three administrations under Bill Clinton, George W. Bush and Barack Obama have refrained from publicly commenting on policy decisions.
Most developed-world central banks are given a degree of independence from governments so monetary policy doesn’t succumb to the whims of politicians. In emerging markets such as Turkey, the government of President Recep Tayyip Erdogan has felt no such restraint.
It’s long been speculated that the taboo of commenting on U.S. monetary policy could change under Trump, who slammed the Fed during his election campaign and has demonstrated repeatedly his willingness to flout the conventions and sensibilities of establishment Washington.
While it’s been many years, the White House has also been known to exert other forms of pressure. In December 1965, Lyndon Johnson famously summoned Fed Chairman William McChesney Martin to his ranch in Stonewall, Texas, to confront him over Martin’s decision to lift rates. Martin held his ground.
The same couldn’t be said for Arthur Burns under Richard Nixon. Oval Office tapes later revealed that Nixon demanded Burns goose the economy with low rates ahead of the 1972 election. When Burns didn’t immediately cooperate, the White House planted a false story in the press that Burns was seeking a big pay raise, according to a book by Nixon speech writer William Safire. Eventually Burns relented, aiding Nixon but also helping to feed runaway inflation that dogged the U.S. economy for nearly a decade.
The last known example of U.S. presidential strong-arming came when George H. W. Bush was fighting for re-election. Bush’s White House pushed Alan Greenspan behind the scenes on rates and openly called on the Fed to lower its benchmark in June 1992. Greenspan did lower rates 13 times over 1991-92, but slowed the pace of cuts in the latter year, much to the White House’s annoyance.
