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Fed chief takes stage under Trump’s critical gaze

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Jerome Powell
Federal Reserve Chairman Jerome Powell delivers the semi-annual Monetary Policy Report to the House Financial Services Committee hearing in Washington, D.C. in this Feb. 27. -- REUTERS

Washington, United States — President Donald Trump’s renewed criticism of the Federal Reserve’s handling of the economy mean politics may overshadow highly anticipated comments from Fed chief Jerome Powell on Friday.

The speech is the highlight of the annual gathering of global central bankers in Jackson Hole, Wyoming, an idyllic setting in the American West for serious discussions on how to manage the economy.

The conference has taken on a mystique since past Fed chairs, and other central bankers, have occasionally used the event to signal a change in policy.

But Powell’s remarks will be watched even more closely after Trump, who has flouted established norms throughout his presidency, once again broke protocol this week by publicly criticizing Powell for raising interest rates.

“I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” Trump said in an interview with Reuters.

It was not the first time he had struck out at Fed policy for not supporting faster economic growth but he went even further when he also declined to confirm his support for the central bank’s independence, something that has the potential to worry financial markets.

“I believe in the Fed doing what’s good for the country,” he said.

Questioning Fed actions is normally off limits for US politicians, since it could raise fears central bankers would feel political pressure and fail to act to head off rising inflation.

Parallels with Erdogan
Trump’s lack of concern with that norm worries economists.

“In an era of general mistrust of political institutions, it is key for central banks throughout the world to avoid falling into the political sphere of influence,” said Greg Daco of Oxford Economics.

“Turkey’s recent travails are in part due to a lack of central bank credibility,” he said.

Kit Juckes of Societe Generale also made a comparison to crisis-hit Turkey.

“The president would like easier monetary policy or at least he would not like to see interest rates marching higher to offset the boost to the economy from his fiscal and trade policies,” he said in a research note.

“His liking for low rates is something he has in common with Turkey’s President (Recep Tayyip) Erdogan,” Juckes said, but noted that the Turkish leader “can influence monetary policy because the CBRT is clearly not independent.”

Trump nominated Powell to lead the Fed after declining to give a second term to Janet Yellen, someone he harshly criticized during the presidential campaign in 2016, accusing her of keeping rates low to help his opponents.

As the US economy has recovered, the Fed has raised the benchmark lending rate seven times since December 2015, twice this year under current Powell, and is expected to hike again in September and December.

But Trump said rising interest rates — which tend to strengthen the dollar making US exports more expensive — will slow the economy and offset the impact of the tax cuts he championed.

Chris Low of FTN Financial, warned that Trump’s criticism “could backfire by making him look weak, complaining about something he cannot change.”

The title of Powell’s speech is “Monetary Policy in a Changing Economy,” but since few surprises are expected on policy, the focus is likely to be on whether he repeats or toughens previous comments on the Fed’s independence from political considerations. — AFP