Jerome Powell should use his Jackson Hole speech to shield Fed independence from Trump's attacks

Drew Angerer/Getty ImagesPresident Donald Trump and Federal Reserve Chair Jerome Powell
  • President Donald Trump has broken with tradition by criticising his own pick for Federal Reserve Chairman, Jerome Powell, for raising interest rates.
  • Powell’s Jackson Hole speech Friday morning presents the perfect opportunity for a measured but decisive pushback from the Fed chairman.

Federal Reserve Chairman Jerome Powell’s primary job is to ensure low and stable prices as well as low unemployment – but most economists agree that he can only do that in the long run if the central bank remains politically independent.

President Donald Trump, in an extension of his attacks on many key US institutions and norms, has vocally criticised Powell, his own pick to replace ex-Fed Chair Janet Yellen, for raising interest rates.

First, Trump complained to a group of donors in the Hamptons that Powell wasn’t turning out to be the “cheap money” Fed chairman he had expected.

He was even more explicit in a Reuters interview: “I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” The Fed has raised interest rates five times since Trump took office, with two of those hikes coming under the leadership of Powell. It is expected to hike rates two more times this year, according to Bloomberg’s World Interest Rate Probability data.

Trump’s comments rattled markets briefly, with stocks and the dollar edging lower.

“We’re negotiating very powerfully and strongly with other nations,” Trump said, even though most trade negotiations appear troubled or stalled at the moment. “We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated.”

There’s a clear contradiction in Trump’s economic argument: On the one hand, he claims economic growth is raging like never before (it’s not), but also argues the Fed should supercharge this growth with more stimulus.

More importantly, such an explicit and dangerous breach of norms calls for a strong response from the Fed, which has thus far not been forthcoming. But Powell has the perfect venue in which to deliver such a rebuttal: Tomorrow’s widely-watched speech from Jackson Hole, Wyoming, at the Kansas City Fed’s idyllic annual symposium.

Powell doesn’t have to say a lot, or mention Trump by name. He should simply insert a sentence in his speech that says the central bank will continue to set interest rates based on the economic outlook, not the whims of politicians.

To be clear, there’s an economic case to be made for the Fed to slow or stop the pace of its interest-rate hikes. While the economy is strong, inflation has just barely reached the Fed’s 2% target after years of undershooting it, and wages for most workers remain stuck in neutral despite a historically low 3.8% jobless rate. But that’s not Trump’s argument, and it’s not his to make in the first place.

Powell needs to make that boundary quite clear. Otherwise the president will keep pushing.

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