It is officially: America faces a presidential election rematch between former President Donald Trump and President Joe Biden. The two candidates sealed their parties’ nominations When they each reached the required delegate count this week, a repeat of 2020 was set up with roles reversed: Biden, the incumbent, was vying for a second term, which he denied to Trump, who is back in his comfort zone as a challenger.
To say that there are major policy differences between the two candidates would be an understatement. But they have one decision in common: both nominated US Federal Reserve Chairman Jerome Powell to his post at the helm of the central bank of the world’s largest economy.
But their approaches to dealing with Powell illustrate not only the different policies one might expect from a Democrat and a Republican, but also each candidate’s strikingly different views on the role of the Federal Reserve. Biden maintained the longstanding expectation that the president would not intervene in the Fed’s monetary policy. In fact, Biden, along with his spokesmen, regularly went out of their way to ensure that the White House did this don’t even seem to to do that. Meanwhile, Trump’s more bombastic approach was to apply public pressure on Powell, which served primarily to demonstrate the weakness of using “political norms” to ensure the separation of powers in the US government.
Powell was first nominated presented to the Federal Reserve Board of Governors in 2011 by former President Barack Obama. In 2017, Trump hired him to do it Run the Fed for his first four-year term. In 2021, Biden renominated Powell despite some opposition from progressive Democrats. That puts Powell in the unusual position of leading two administrations, both of which he had to navigate through particularly turbulent economic times.
Last month, Trump told Fox Maria Bartiromo from Business Network he would replace Powellrepeating a theme of his presidency.
“Way wrong”
In 2018, Trump openly lambasted Powell, saying the Fed was raising interest rates too quickly and hurting the stock market. Trump’s frustration reached a peak at the end of the year Reports that he was considering firing Powell, which set off a firestorm in D.C., not least because many constitutional scholars weren’t even sure the president had the legal authority to do so. Until then, no president had done it publicly considered firing a Federal Reserve chairman for implementing monetary policy that they did not agree with, let alone applauding the press about it.
“So far, I’m not even a little bit happy with my choice for Jay,” Trump said told The Washington Post in November 2018, referring to Powell by his nickname. “Not even a little. And I’m not blaming anyone, I’m just telling you that I think the Fed is completely wrong in what they’re doing.”
Trump said that once only problem The US economy confronted the Federal Reserve and compared it to an untrained golfer. He even compared Powell to Chinese President Xi Jinping, asking in August 2019, “Who is our greater enemy, Jay Powell or Chairman Xi?”
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I do, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both of them, and the US will do great…
– Donald J. Trump (@realDonaldTrump) August 23, 2019
During his time in office under Trump, Powell rarely mentioned the former president by name or explicitly addressed political pressures. However, he made general statements about the importance of central bank independence.
“We will never take political considerations into account or discuss them as part of our work,” Powell said said in January 2019, shortly after it was announced that Trump was considering firing him. “We are human beings. We make mistakes. But we will make no mistakes of character or integrity.”
On one occasion this month, he was asked directly whether he would resign if Trump asked him to, Powell said replied: “NO.”
Biden’s firewall vs. Trump’s wrecking ball
After taking office, Biden distanced himself from his predecessor’s behavior. In one Wall Street Journal op ed In 2022, ahead of a rare meeting with Powell, Biden wrote: “My predecessor demeaned the Fed, and previous presidents have sought to unduly influence its decisions at times of elevated inflation. “I will not do that.”
The Fed’s independence is taken into account for political considerations critical to its mandate to manage monetary policy. Without the freedom to make often unpopular decisions to either slow an overheating economy or pull it out of the crisis caused by events like the pandemic or the 2008 financial crisis, the Fed would be exposed to the vicissitudes of partisan politics – with potentially catastrophic consequences. For example, an unscrupulous government official might engineer an economic crisis to harm a political rival, or strain the economy in the short term to bolster their own incumbency, while damaging its long-term health by causing it to overheat.
In his interview with Bartiromo, Trump said rejected the idea of Fed independenceHe said he thinks the Fed is “political,” particularly Powell. “I think he’ll probably do something to help the Democrats,” Trump said.
He continued: “It looks to me like he’s trying lower interest rates to maybe get people elected. I don’t know.”
Against this background, Biden’s commitment is business as usual Firewall The tensions between a presidential administration and the Fed stand in stark contrast to Trump’s overtly political pressure. The president has regularly stated his intention to abide by and not influence the Fed. During Biden’s meeting with Powell in June, when inflation was peaking, he expressed belief in the Fed’s ability to cut prices.
“My plan to fight inflation starts with the simple suggestion: Respect the Fed, respect the independence of the Fed, which is what I have done and will continue to do,” Biden said said.
When Biden casually remarked a few months later in December that a particularly strong monthly jobs report meant the economy “in a sweet place” and that further interest rate hikes may not be needed, this was met with surprise, although at least one other Fed official – Atlanta Federal Reserve Bank President Raphael Bostic – had further predicted it publicly Interest rate increases wouldn’t be necessary.
Meanwhile, the usual political whirlwind of an election and the Federal Reserve’s ongoing battle against inflation could collide in the fall. The first round of interest rate cuts is widely expected to ease the economy Starts around June. With a consensus of at least three interest rate cuts The elections predicted for this year will likely come later as the country is in the midst of election season.