U.S. President Donald Trump on Thursday cast aside concerns about the Federal Reserve鈥檚 independence, saying he was 鈥渘ot happy鈥� with the Fed鈥檚 recent interest rate increases.
Trump told CNBC in an interview: 鈥淚 don鈥檛 like all of this work that we鈥檙e putting into the economy and then I see rates going up.鈥�
Last month, the Fed raised its benchmark rate for a second time this year and projected two more increases in 2018. Its rate hikes are meant to prevent the economy from overheating and igniting high inflation. But rate increases also make borrowing costlier for households and companies and can weaken the pace of growth. In particular, the Fed鈥檚 most recent rate hikes could dilute some of the benefit of the tax cuts Trump signed into law last year.
The president acknowledged that his comments about the Fed would likely raise concerns. The central bank has long been seen as needing to operate free of political pressure from the White House or elsewhere to properly manage interest rate policy.
The Fed鈥檚 dual mandate is to maximize employment and stabilize prices. By maintaining its independence, the central bank can make politically contentious decisions to combat economic challenges, like the huge bond purchases it made after the 2008 financial crisis to help drive down long-term rates to support the economy. That policy drew rebukes from many Republican lawmakers.
In February, Jerome Powell, Trump鈥檚 hand-picked choice, became Fed chairman. Last week, Powell said in an interview with the radio program Marketplacethat he didn鈥檛 expect to face pressure from the White House.
鈥淲e have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns,鈥� Powell said. 鈥淲e do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently.鈥�
He added, 鈥淣o one in the administration has said anything to me that really gives me concern on this front.鈥�
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The reaction to Trump鈥檚 remarks in the financial markets was muted. The U.S. dollar fell to 112.46 yen from 112.84 yen earlier, and yields on Treasurys dipped slightly.
After Trump鈥檚 interview with CNBC was made public, Lindsay Walters, a White House spokeswoman, said the president 鈥渞espects the independence of the Fed.鈥�
鈥淭he president鈥檚 views on interest rates are well-known, and his comments today are a reiteration of those long held positions, and public comments,鈥� Walters said.
Speaking about Fed policy in his interview with CNBC, Trump said he is 鈥渓etting them do what they feel is best.鈥�
But his comments raised alarms, including with some former Fed officials who saw in his remarks a possible effort to apply public pressure on the central bank.
鈥淚 am not pleased,鈥� said Carl Tannenbaum, a former Chicago Fed official and chief economist at Northern Trust. 鈥淭he remarks certainly aren鈥檛 an immediate threat to Fed independence, but they break with the tradition of respectful distance.鈥�
Randall Kroszner, a former Fed governor, said the central bank has withstood political pressure before and will continue to do so under Powell鈥檚 leadership.
鈥淭he Fed has often faced political pressures 鈥� from Congress, presidents, Treasury secretaries and innumerable outside groups,鈥� said Kroszner, an economics professor at the University of Chicago. 鈥淢y experience at the Fed is consistent with what Jay Powell recently said 鈥� being non-political is deep in the Fed鈥檚 DNA 鈥� and I believe that Jay will keep it that way.鈥�
During the 2016 presidential campaign, Trump was highly critical of the Fed and accused its policymakers of keeping rates at ultra-low levels to favour Democrats. But he also told CNBC during the campaign that he is a 鈥渓ow interest-rate-person.鈥�
Past efforts to apply political pressure on the Fed have sometimes hurt the economy. President Richard Nixon encouraged Arthur 亚洲天堂, the Fed chairman at the time, to help boost economic growth ahead of Nixon鈥檚 1972 landslide re-election. That episode ultimately triggered runaway inflation that took a decade to tame and required raising the Fed鈥檚 policy rate above 15 per cent 鈥� more than eight times the rate鈥檚 current average.
George H.W. Bush鈥檚 administration complained that he felt the Fed鈥檚 failure to cut rates more quickly in 1992 contributed to his re-election defeat that year.
When Robert Rubin led President Bill Clinton鈥檚 National Economic Council, he adopted a rule of never commenting on the Fed鈥檚 actions 鈥� a policy that was subsequently followed by the George W. Bush and Obama administrations.
The Associated Press
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