President Donald Trump has repeatedly attacked the Federal Open Market Committee (FOMC) and its chairman, Jerome Powell, since taking office. However, despite his criticism, Powell claims to have had no contact with the President.
Trump’s attacks on the Fed focus on inflation, which dominated the political rhetoric leading up to the election. Voters elected Trump primarily because they believed he would handle the economy better than his rival Kamala Harris. Nevertheless, Trump has not met with Powell to discuss economic issues.
Economists are surprised by Trump’s attempts to influence the Fed, given its history of independence from politicians. The FOMC is mandated to keep inflation at a base level of 2% and maximize employment, rather than being swayed by short-term goals or presidential ambitions.
The importance of Fed independence cannot be overstated. The central bank’s long-term focus on economic prosperity differs significantly from the four-year cycles of politicians. Powell has consistently emphasized this point, stating that his primary concern is what is best for the people he serves, not personal politics.
Historically, attempts to undermine Fed independence have led to negative consequences. In the 1970s, President Richard Nixon’s subtle hints to then-Fed Chairman Arthur Burns resulted in a period of stagflation. This serves as a reminder why Fed independence is crucial.
Powell and his peers are aware that they are accountable to the public, but ignoring the President or appearing to disregard his wishes could undermine this accountability. However, the Fed also must balance its actions with maintaining stability in the markets and avoiding any policy decisions that might tip them into a downward spiral.
Analysts are now hedging their bets on the potential impact of Trump’s criticism on Powell and the Fed’s monetary policy strategy. While some believe that Trump’s over-criticism might lead to hawkish decisions by the Fed, others caution against making assumptions about the new administration’s policies.
Source: https://fortune.com/2025/01/31/donald-trump-jerome-powell-no-phone-call