In the past year, Trump has criticized the central bank repeatedly. “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” he said in July, to all sorts of tut-tutting from international economic types. “I have to tell you, it puts us at a disadvantage.” The substance of Trump’s critique was no surprise: Low rates mean more growth. Nor was the fact that he made it. As a candidate, Trump had argued that Janet Yellen, then the Fed chair, was goosing markets to benefit Barack Obama, then the president. But the commentary was nevertheless unprecedented. Residents of the White House have scrupulously avoided calling the Federal Reserve’s independence into question since the Richard Nixon administration.
With good reason. Markets tend to punish countries with politically motivated monetary authorities, and politically motivated monetary authorities seem to produce worse economic outcomes. “Operational independence of central banks—the ability to choose an instrument to achieve inflation goals—has been associated with significant improvements in price stability,” one Harvard review of the research reads. If Trump had his way, the Fed might keep interest rates too low for too long, fomenting bubbles or generating excess inflation.
But Trump’s talk, unusual as it is, does not seem to have translated into action. The current Federal Reserve chairman, Jerome Powell, a Trump appointee, is widely respected and has maintained the course set by Yellen before him. “We have disparate points of view, which we debate extensively,” Powell said at a press conference in September, when asked about Trump’s criticism. “We don’t consider political factors.”
People outside the building believe him. “Powell just seems to be a straight shooter, independent minded, respected by both sides of the aisle,” said James Kahn, an economist and a former official at the Federal Reserve Bank of New York. “The only way Trump could end up changing that is if there were openings on the board and Trump could get through” more political nominees. Yet that has not happened. Indeed, Trump just named a highly lauded Democrat to an open posting.
Even if Trump names more politically minded candidates to open positions, the institution is simply not as easy to sway as departments run by the Cabinet or independent bodies stocked with nominated officials and political staffers. The Fed is a cloistered, small-c conservative bureaucracy. Its governors have long, staggered terms. The tenure of its chairs does not align with the four-year presidential cycle.
Trump has not seemed interested in pressuring the Fed behind closed doors, either. “Historically, it’s the inside pressure that’s tougher to deal with,” said Vincent Reinhart, the chief economist at Standish Mellon, who worked at the Fed for two decades. “Traditionally, the chair has a breakfast once a week with the secretary of Treasury. When they start leaning into you, saying you’re making a mistake in private, that’s harder.” But Treasury Secretary Steven Mnuchin has undercut Trump’s criticism of the bank. And “President Trump shows no appetite to play the inside game,” Reinhart told me.