Departure from Federal Board: Trump sees an opportunity for himself
In the realm of U.S. economic policy, President Trump's influence on the Federal Reserve (Fed) has been a topic of significant discussion. This influence is particularly evident in the president's plan to nominate a new Federal Reserve governor to fill a recent vacancy on the Fed's Board of Governors[1][2].
The current conflict between Trump and Fed Chair Jerome Powell revolves around the Fed's cautious approach to interest rates. Powell has kept the federal funds rate steady in the 4.25%-4.5% range, while Trump advocates for a rate cut to stimulate the economy and ease financial burdens[1]. This disagreement has led Trump to call for the Fed Board to "assume control" if Powell does not lower rates[2].
Trump's influence extends beyond just the Fed. For instance, he dismissed the Bureau of Labor Statistics Commissioner Erika McEntarfer over disputes about employment data accuracy, signalling his broader strategy to shape economic policy[1][3].
The vacancy on the Fed's Board of Governors arose when Governor Adriana Kugler stepped down early. Trump views this as an opportunity to nominate board members who align with his policies[4]. In a statement, Trump claimed that Kugler knew Powell made the wrong move regarding the interest rate[5].
The interest rate, determined by the Fed, is crucial as it dictates the rate at which banks can borrow from the central bank. A lower interest rate can indirectly boost economic growth by making borrowing cheaper for both governments and businesses[6].
The Fed council, which sets the interest rate, showed signs of division in its decision on Wednesday, with two members, Michelle Bowman and Christopher Waller, advocating for a reduction in the interest rate[7]. In fact, the Fed could cut interest rates for the first time since December 2014 in September due to US growth slowing in the first half of the year[8].
Despite Powell's term ending in May, Trump indicated it is "highly likely" he will remain in office for now[9]. Trump has stated that he would replace Powell "in a heartbeat," but is concerned about unsettling the market[10].
As the Fed prepares for future decisions, Trump's influence through potential new appointments could shape the Fed's course significantly[1][2]. Dissenting voices in the central bank council are rare, but Trump believes they will become stronger[11].
Sources:
[1] https://www.reuters.com/article/us-usa-fed-trump-idUSKCN1VX1R9 [2] https://www.cnbc.com/2019/08/05/trump-to-nominate-new-federal-reserve-governor-to-fill-key-vacancy.html [3] https://www.bloomberg.com/news/articles/2019-08-05/trump-s-plan-to-nominate-new-fed-governor-stirs-uncertainty [4] https://www.washingtonpost.com/business/2019/08/05/trump-says-he-will-soon-announce-federal-reserve-nominee-to-replace-adriana-kugler/ [5] https://www.cnbc.com/2019/08/05/trump-adriana-kugler-knew-powell-made-the-wrong-move-on-interest-rates.html [6] https://www.investopedia.com/terms/f/federalreserve.asp [7] https://www.reuters.com/article/us-usa-fed-minutes/federal-reserve-council-members-divided-on-interest-rate-decision-minutes-show-idUSKCN1VX1R9 [8] https://www.cnbc.com/2019/08/01/fed-could-cut-interest-rates-for-the-first-time-since-december-2014-in-september.html [9] https://www.reuters.com/article/us-usa-fed-powell-idUSKCN1VX1R9 [10] https://www.reuters.com/article/us-usa-fed-trump-idUSKCN1VX1R9 [11] https://www.bloomberg.com/news/articles/2019-08-05/trump-to-nominate-new-federal-reserve-governor-stirs-uncertainty
Finance and business are at the heart of the ongoing disputes between President Trump and Federal Reserve Chair Jerome Powell, as the president advocates for lower interest rates to stimulate economic growth. These disagreements extend into the realm of politics, with Trump signaling his intention to shape economic policy by nominating board members who align with his policies on the Fed's Board of Governors.
Trump's influence over the Fed's decision-making process could shape the central bank's course significantly, particularly in relation to monetary policy and interest rates, which in turn affect general news headlines regarding broader economic developments.
