Is the Federal Reserve About to Get the US President as Copilot? Trump’s Comments Spark Concerns

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As a seasoned crypto investor with a keen eye for economic trends and a knapsack full of lessons learned from the 2008 financial crisis, I find Mr. Trump’s latest statements regarding the Federal Reserve’s interest rate-setting process alarming, to say the least.

In a recent comment that has sparked debate about the apolitical nature of the Federal Reserve, former U.S. President Donald J. Trump proposed that the U.S. president should have influence over interest rate decisions, according to Jeanna Smialek’s report for The New York Times on August 8, 2024. At a press conference held at his Mar-a-Lago club, Mr. Trump expressed firm conviction that the president should participate in the decision-making process of setting rates, claiming that his intuition surpasses that of many Federal Reserve members, including its chairperson.

The New York Times points out that concerns have been raised about the possible control Donald Trump might attempt to assert over the Federal Reserve should he be re-elected. Throughout his previous term, Trump frequently criticized the Fed’s policies and often launched personal attacks against Jerome H. Powell, the current Fed chairman, whom he appointed. Despite this appointment, disagreements arose between them due to Powell’s decision to maintain higher interest rates, which Trump publicly denounced, even going so far as to compare him unfavorably with foreign leaders.

During a press conference, President Trump admitted to past disagreements with Chairman Powell, hinting at their strained relationship. Despite contemplating Powell’s dismissal during his presidency, Trump found the legal basis for such an action vague, and ultimately chose not to proceed. Nevertheless, there are lingering doubts about potential obstacles the Federal Reserve might encounter if Trump were re-elected, especially since Powell’s term as chair extends until mid-2026.

The New York Times points out that certain Republican leaders have suggested actions which could weaken the Federal Reserve’s autonomy in deciding interest rates. Despite this, Donald Trump’s campaign has been hesitant to fully support these ideas. Earlier in the year, Trump tried to ease worries by stating during an interview with Businessweek that he had no plans to fire Powell if re-elected. However, his comments left room for interpretation, indicating that he might consider such a move if the Fed’s policies didn’t suit his views.

Furthermore, The New York Times states that Mr. Trump hints at reducing interest rates should he regain the presidency; however, it’s important to note that the presidency doesn’t have direct authority over such decisions. Instead, the Federal Reserve is responsible for setting interest rates, which are currently at 5.3 percent – their highest in more than two decades – as they attempt to curb inflation. While rate cuts could be imminent, possibly starting in September, it’s likely that borrowing costs will stay high when the next president assumes office in early 2025.

During his initial term, Mr. Trump openly supported decreased interest rates, and The New York Times points out that he has recently proposed these rate reductions prior to the election might be aimed at assisting the Democratic party. Lower interest rates generally foster growth in markets and stimulate the economy over time, a factor that could have substantial political consequences.

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2024-08-09 15:56