A finalist for Fed Chair warns Trump doesn't get a basic function of the Federal Reserve -- and it poses a threat to economy

  • Kevin Warsh, a former Federal Reserve official who was on Donald Trump’s shortlist to lead the US central bank, says the president did not seem willing to respect Fed independence.
  • “In some sense the broader notion of an independent agency, that’s probably not an obvious feature to the president,” Politico quotes Warsh as saying.
  • The comments are in line with Trump’s general disregard for basic institutions of democracy, including a free press and an independent judiciary.

Donald Trump is obsessed with loyalty and shows frequent disdain for US institutions like the judiciary and a free press, so it fits that he would flout a basic tenet of economic policy – Federal Reserve independence.

That approach, which comes with potentially damaging ramifications for the economy if the president surrounds himself with monetary yes-men, has been confirmed by a top Republican economist who was on Trump’s list of finalists for the job of Fed Chair. The role went to Jerome Powell, then a sitting Fed governor former Carlyle Group executive.

But former Fed governor and Hoover Institution economist Kevin Warsh, who is also an advisor to large private firms, tells Politico’s Morning Money newsletter:

“Warsh told me he did not have the impression that Trump viewed the central bank as an independent organisation meant to make decisions in the best long-term interests of the economy rather than at the bidding of the White House or any other political institution: ‘In some sense the broader notion of an independent agency, that’s probably not an obvious feature to the president,'” Politico’s Ben White cites Warsh as saying.

“I asked him if the president appeared to understand the historical importance of the Fed’s independence from partisan political pressure.'” Trump responded, according to White’s account of Warsh, that “this might be a good time for a no comment.”

Warsh’s comments take on increased relevance for political reasons. His father-in-law is a major and influential Republican donor.

For now, Fed officials including Chairman Powell have not been placed in a position where they are forced to do the president’s bidding. But if the economy were to run into trouble or interest rates began rising too rapidly, the Fed could become yet another institution whose historical credentials are tested by the Trump administration’s disregard for ethical boundaries.

Rampant US inflation in the 1970s, to name one instance of politically-linked central bank dysfunction, was due in part to an acquiescent central bank that refused to raise interest rates in the face of rapidly spiking prices.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.