Trump Questions Fed’s Impartiality Before FOMC Meeting
Republican presidential candidate Donald Trump has questioned the independence of the U.S. Federal Reserve Bank, saying that Chairwoman Janet Yellen has kept rates artificially low to help the administration of current President Barack Obama.
In a bold attack on one of America’s most respected economic institutions, Trump said Yellen was keeping interest rates, “artificially low to get Obama retired,” adding, “watch what’s going to happen afterwards — it’s a very serious problem.” (Source: “TRUMP: The Fed is manipulating interest rates until Obama is out of office,” Business Insider, September 12, 2016.)
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Politicians and investors are zeroing in on the central bank’s monetary policy in recent weeks, as the world’s largest economy continues to fail to break out of a low growth cycle, with interest rates remaining near record low levels since 2008.
Trump criticized the Fed for keeping rates “artificially low,” saying this policy creates asset bubbles and may endanger the financial health of millions of Americans when rates start to go up and they’re unable to pay their bills. (Source: Ibid.)
Fed policymakers are meeting next week to decide on the direction of interest rates.
Trump’s criticism of Yellen’s monetary policy comes at a time when some of the biggest investors in the U.S. have started to raise questions over the government’s inaction towards stimulating growth and their overreliance on monetary tools, which, according to investors, have lost their utility.
“I would want to have a policy where we can begin to gently reduce debt, because right now it is not under control,” Trump said. “What happens if interest rates go up fairly substantially? What happens with all of the money we have and we are borrowing — you know what that does to our balance sheet? I mean that’s a cost that’s beyond belief.” (Source: Ibid.)
Replying to Trump’s attack on Yellen and the Fed’s independence, Fed Governor Lael Brainard suggested that policymakers will discuss this attempt to politicize this important institution when they next meet.
“The institution is designed to ensure that independence from the executive branch is absolutely the focus of the deliberations of the FOMC,” she said. (Source: “Fed’s Brainard Tells Trump to Back Off After Criticism of Yellen,” Bloomberg, September 13, 2016.)
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The U.S. Fed’s current benchmark rates, known as the federal funds rate, stand between 0.25% and 0.50% from their double-digit levels in the early 1980s.
Earlier this month, Yellen has said that a case for an interest rate increase has become stronger on the back of a continued solid performance of the labor market and her outlook for economic activity and inflation. (Source: “Janet Yellen says case for rate rise has ‘strengthened,’” Financial Times, August 26, 2016.)
