Why Trump’s Fed bashing is always encouraging
DONALD Trump is none too pleased with the Federal Reserve. That is a good thing.
On Thursday, the president launched into a third day of verbal abuse of the central bank.
“The Fed is getting a little too cute,” he told Fox & Friends. “That’s all. It’s ridiculous what they’re doing.”
On Wednesday afternoon, following the 831-point plunge in the Dow industrials, he said that the “Fed has gone crazy.” He made somewhat milder remarks earlier.
The tone of Mr. Trump’s comments may be unique, but criticism of the legally independent institution is older than the Fed itself. Even before its establishment in 1913, during earlier, abortive attempts to create a permanent US central bank, sniping from the White House and Congress was frequent.
Such criticism has usually meant that it was doing something necessary but unpopular.
Politicians are naturally progrowth, except in rare cases when that growth agenda rankles their particular constituents or they are out of power. For example, back in 2010, before he was vice president, Mike Pence lamented ultra-loose monetary policy during the early Obama administration. He had little patience for the full-employment side of its dual mandate.
“It’s time that the Fed focus solely on price stability and the dollar,” he said.
Facing re-election in 1972, recordings that later became public showed that Richard Nixon pressured Fed chief Arthur Burns to ease up. Mr. Nixon went on to win in a landslide, but the 1970s saw rampant inflation until Fed chief Paul Volcker took draconian steps to break its back. Appointed by Jimmy Carter, he helped stain the president’s legacy in the process, sparking a recession.
Mr. Volcker’s bold action has made him a central-banking hero and underpinned back-to-back decades of robust stock- and-bond market gains. Toward the end of that run, when Alan Greenspan occupied the role, Mr. Greenspan was openly praised by President Bill Clinton. With the benefit of hindsight, though, the greatest bull market of all time should have been nipped in the bud before it turned into a speculative mania.
Which brings us to today. Jerome Powell’s Fed shows no sign of flinching in its intent to tighten. The Trump tax cuts and government-spending increases at a time when unemployment is at its lowest since the 1960s are creating unheard of stimulus. The resulting rise in bond yields might damage the stock-market gains for which Mr. Trump has, unusually, claimed explicit credit.
He must grasp, though, that the Fed isn’t an instrument for supporting stock gains or even the man who appointed its chairman. His public ire is a sign to the world that the Fed’s independence is intact.