Time and time again over the past year, I’ve variously suggested that Donald Trump would end up looking to effectively commandeer the Fed in the event rising rates began to threaten his cherished equity rally or otherwise seemed poised to slow down the economy.
When Barack Obama was President, Trump called the stock market a figment of Janet Yellen’s imagination – a manifestation of her desire to “do political things”.
A couple of days after he lambasted Yellen’s purported politicizing of interest rates in an interview on CNBC, he said in a debate with Hillary Clinton that if rates rise, the “big, fat ugly bubble” that Janet Yellen had created would pop.
Predictably, Trump moved to take credit for every 1,000 point Dow “milestone” in that “big fat ugly bubble” as soon as he took office.
But it wasn’t just Trump’s penchant for bragging about the Dow on Twitter that suggested he might eventually start to try and influence monetary policy. His populist fiscal policies tipped the same thing.
Trump threw fiscal discipline out the window when he passed a deficit-funded tax cut and delivered a further blow to the GOP’s reputation for fiscal rectitude when he endorsed more late-cycle stimulus just months later. It’s a populist platform that’s inflationary and prizes growth above all else in a never-ending effort to perpetuate the illusion of economic “greatness”.
This is right out of the playbook of Turkish autocrat Recep Tayyip Erdoğan. On February 13, in a post for DealBreaker, I wrote the following:
I don’t think everyone fully appreciates how precarious this is about to get for Jerome Powell and the Fed. Just imagine for a second that Trump’s myopic tax cuts and stimulus end up getting him the economic sugar high he’s after and just as he’s shrieking about it at a rally, the Fed hikes rates citing an overheating economy. Trump would go crazy. He would never let that stand. I’m telling you, he’s going to turn into Erdogan when it comes to rates.
Sure enough, in an interview with CNBC’s Joe Kernen on Thursday, Trump went there, suggesting that he’s “not thrilled” with the Fed’s ongoing effort to hike rates and tighten policy.
Here’s the full quote:
I’m not thrilled. Because we go up and every time you go up they want to raise rates again. 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.
Note the nuance there. Trump doesn’t say “I’ll let them do what they feel is best.” Rather, he says “I’m letting them do what they feel is best.” That certainly has a kind of “for now” feel to it, as though he’s leaving the door open to intervene in the interest of forcing Powell to cut rates at some point.
In a statement, the White House said this:
Of course the President respects the independence of the Fed. As he said he considers the Federal Reserve Board Chair Jerome Powell a very good man and that he is not interfering with Fed policy decisions.
Do me a favor and read the following quotes from a speech Erdogan made back in November when inflation was spiraling out of control in Turkey and the lira was plunging:
They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered. Results speak for themselves. We will solve this, things can’t go on like this.
Who does that sound like to you? I mean, besides Erdogan. If you read the accompanying color from Bloomberg it’s even easier to imagine Trump going this route if Powell gets too aggressive. To wit:
Erdogan [is] vowing to step up a fight against what he calls the “interest rate lobby,” an alleged cabal of financiers and lobbyists that he says is conspiring to keep Turkey’s interest rates artificially high.
It’s almost too perfect a parallel. Before you know it, “the swamp” and the “American deep state” will include the Fed governors.
Trump also said this in the CNBC interview:
So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t care less what they say, because my views haven’t changed.
That’s Trump, and here’s Erdogan from his infamous interview with Bloomberg in May:
I didn’t think so.