Trump's previous attacks on the Fed raised widespread concern about political interference in the Fed's policymaking.
President-elect Donald Trump speaks during a meeting with the House GOP conference on Nov. 13, 2024, in Washington.WASHINGTON — President-elect Donald Trump campaigned on the promise that his policies would reduce high borrowing costs and lighten the financial burden on American households.
Political clashes might be inevitable in the next four years. Trump’s proposals to cut taxes and impose steep and widespread tariffs are a recipe for high inflation in an economy operating at close to full capacity. And if inflation were to reaccelerate, the Fed would need to keep interest rates high.Because Powell won't necessarily cut rates as much as Trump will want.
An example occurred this year. The 10-year yield fell in late summer in anticipation of a Fed rate cut. Yet once the first rate cut occurred on Sept. 18, longer term rates didn’t fall. Instead, they began to rise again, partly in anticipation of faster economic growth. But persistent attacks would tend to undermine the Fed's political independence, which is critically important to keeping inflation in check. To fight inflation, a central bank often must take steps that can be highly unpopular, notably by raising interest rates to slow borrowing and spending.
“The markets need to feel confident that the Fed is responding to the data, not to political pressure," said Scott Alvarez, a former general counsel at the Fed.He can try, but it would likely lead to a prolonged legal battle that could even end up at the Supreme Court. At a November news conference, Powell made clear that he believes the president doesn't have legal authority to do so.
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