LARRY SUMMERS: Trump just took another step toward turning the US into a 'banana republic'

Drew Angerer/Getty ImagesPresident Donald Trump and Federal Reserve Chair Jerome Powell
  • President Donald Trump told CNBC that he’s not happy with the Federal Reserve’s interest rate hikes, challenging central-bank independence and sending the US dollar lower.
  • Former Obama economic adviser Larry Summers says the comments are “one more step in what seems like a presidential strategy of turning the United States into a banana republic.”

It’s almost surprising that it took this long, but President Donald Trump has finally done it. As critics worried, his general disdain for institutions was bound to reach the Federal Reserve at some point.

And so it was on Thursday that Trump, in an interview with CNBC, broke with a long-standing tradition of US central bank independence, where presidents do not comment on interest-rate policy lest such decisions become politicized. Trump said he is not happy with the Federal Reserve’s recent drive to move interest rates higher after nearly a decade of rock-bottom borrowing costs.

“Because we go up and every time you go up they want to raise rates again,”Trump said in an interview set to air in full Friday. “I don’t really – I am not happy about it. But at the same time I’m letting them do what they feel is best.”

Except it’s not up to Trump to “let” the Fed do anything. The Fed’s job is to try to balance maximum employment with low, stable prices. Its behaviour, in good times, is dictated by the path of the economy, not the whims of politicians.

That’s why Lawrence Summers, former US Treasury Secretary under President Bill Clinton and advisor to President Barack Obama, took to Twitter to criticise the president in strong terms.

“Attacking central bank is one more step in what seems like a Presidential strategy of turning the United States into a banana republic,” Summers tweeted.

“What’s next?” he asked in a follow up tweet. “Tariffs? Attacks on individual companies? Big tax cuts for friends? Demonization of immigrants?Gaudy decoration of Presidential aircraft? Govt staffed by generals?Politicizing law enforcement? Economic policies to enrich the first family?”

And Trump isn’t the only White House official take opine on the Fed. Just recently, White House economic adviser Larry Kudlow told Fox Business Network he hoped the Fed would raise interest rates “very slowly.”

Summers worries these types of remarks could have the opposite of their intended effect, forcing the Fed to tighten the monetary spigots more quickly to counter the overt political pressure.

The former White House economist is a frequent critic of Trump’s, having previously railed against everything from his infrastructure plan to what Summers saw as an ill-timed and poorly-conceived tax cut plan.

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