Kudlow bucks tradition, urges slow rate hikes
WASHINGTON — President Donald Trump’s top economic adviser urged the Federal Reserve on Friday to raise interest rates “very slowly,” ignoring the practice of previous administrations of avoiding comments on monetary policy out of respect for the U.S. central bank’s independence.
“My hope is that the Fed, under its new management, understands that more people working and faster economic growth, do not cause inflation,” Larry Kudlow, director of the White House National Economic Council, said on Fox Business, shortly before new data showed inflation pushing a bit above the Fed’s 2 percent target.
Trump has reshaped the Fed’s leadership since taking office, picking Jerome Powell as chairman and Randal Quarles as its top banking regulator. Trump’s nomination of Richard Clarida for vice chairman has yet to be confirmed by the full Senate.
“I speak to Jay Powell periodically and he’s a good man,” Kudlow said. “My hope is they understand that and they will move very slowly.” A Fed spokesman declined to comment.
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 has felt no such restraint.
Powell, speaking in Portugal on June 20, said the case for continued gradual interest-rate increases remains strong. The Fed raised rates June 13 for the second time in 2018 and signaled two more increases this year. It is continuing to slowly tighten monetary policy to keep inflation in check as unemployment has fallen to the lowest level since 2000.
Previous administrations in recent decades have tried to avoid public comment on the Fed, but Kudlow hasn’t held back. In March, after Trump picked him to replace Gary Cohn, he said he hoped the Fed didn’t “overdo it” on policy as he argued that officials should just let the economy “rip.”
While the economy is improving, Fed officials want to ensure that the nearly decadelong expansion doesn’t overheat and turn into a recession. On Thursday, Atlanta Fed President Raphael Bostic told community groups that “we can’t be cavalier and say let’s grow as fast as we can.”