Back on August 21, I published something here called “Do Not Underestimate Donald Trump When It Comes To The Fed“.
That post was an effort to put what were, at the time, Trump’s latest comments about Jerome Powell in the context of what was happening in Turkey, where President Recep Tayyip Erdogan’s insistence on pro-cyclical monetary policy finally ushered in the collapse of the Turkish lira.
Starting in February (i.e., just after Powell took the reins from Janet Yellen), I began drawing a parallel between Trump and Erdogan. In a February post for Dealbreaker, I explicitly said it was just a matter of time before the President of the United States adopted the playbook of the Turkish autocrat when it comes to commandeering the country’s central bank. The post linked above was yet another effort to make that connection. Here are some excerpts:
The idea that Trump is going to sit idly by while Jerome Powell drives the policy divergence with America’s trade partners ever wider on the way to pushing the dollar higher and, by extension, fighting China and Europe’s trade battles for them, is silly.
Suddenly, former traders and FX analysts have become political scientists and historians on the way to making claims about what Trump “can”, “can’t” and “won’t” do, when it comes to the Fed. Well sorry guys and gals, that’s not your area of expertise. Trump will try to overstep here if he runs out of other options for “winning” his trade war. If he gets irritated enough, he’ll just remove Powell on the excuse the Fed chair is acting against America’s security interests.
You think I’m joking, but I’m not and if you don’t think that’s at least possible, then you haven’t been paying attention for the past 15 months.
By late August (i.e., by the time that post was written), Trump had already attacked Powell and the Fed on multiple occasions. At Jackson Hole, several Fed officials defended their independence and a September hike was already baked in by the time Powell delivered what was (rightly or wrongly) characterized as a “dovish” speech in Wyoming.
Fast forward to last week and Powell was busy talking up the U.S. economy on the way to reiterating the need for further gradual rate hikes. Between his words and more strong U.S. economic data, the bond market finally “listened”. Long end yields exploded higher. Ultimately, the bond rout catalyzed a harrowing selloff in stocks.
Less than two hours after the market close on Wednesday, while speaking to reporters on the on tarmac in Pennsylvania, Trump said the Fed has “gone crazy.”
That was clearly a response to the selloff on Wall Street and later Wednesday evening, he went further still, calling the Fed “loco” in comments carried by Fox News. “I don’t know what their problem is”, he said.
To be clear, “their problem” is Donald Trump, and more specifically, his late-cycle fiscal stimulus and tariffs, both of which are inflationary.
Well, on Thursday, Trump made it abundantly clear that his “crazy” comment on Wednesday afternoon wasn’t just an off-the-cuff remark. Rather, he is intent on influencing Fed policy. Here’s what he said during a characteristically manic phone interview with Fox & Friends:
The Fed is going wild. The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there’s no reason for them to do it. I’m not happy about it.
And he wasn’t done. Here’s a video of Trump chatting with reporters about the Fed in the Oval Office on Thursday, a spectacle that found the President literally saying that he “won’t fire” Jerome Powell:
Obviously, the punchline there is that Trump says he knows “better than [the Fed] does” about monetary policy, but don’t let the allusion to what Janet Yellen supposedly “did” for Obama be lost on you.
During the campaign, Trump accused Yellen of “doing political things” on the way to creating “a big, fat bubble” in the U.S. equity market. At the time, he pitched that as a bad thing; something akin to a nefarious conspiracy.
Now that he’s President, he wants Jerome Powell to do the exact same thing.
And as if that’s not ironic enough, do note that it was just one month ago when, in remarks delivered during a Brookings Institution conference, Yellen said this:
By keeping interest rates unusually low after the zero lower bound no longer binds, the lower-for-longer approach promises, in effect, to allow the economy to boom. The FOMC needs to make a credible statement endorsing such an approach, ideally before the next downturn.
That is Yellen implicitly endorsing pro-cyclical monetary policy during late-stage expansions, or, more to the point, precisely what Donald Trump is arguing for right now.
Had he just been willing to swallow his pride and keep Yellen, he’d have a Fed chair who is not only adored by risk takers the world over, but also predisposed to allowing the economy to overheat.
Finally – and I don’t know how many times I’m going to have to say this – when you hear people say that Trump “can’t fire” Jerome Powell, the rejoinder is simply this: YES. HE. CAN. He can fire Powell “for cause” and if you think for a second that a man who is willing to lampoon sexual assault survivors at a Mississippi campaign rally would be unwilling to step all over decorum by accusing Powell of acting against the interests of the United States on the way to removing him, well then you are either being deliberately obtuse, or else you’re just hopelessly naive.
And as the President made abundantly clear at the tail end of the clip shown above, he, like Erdogan, knows that when you want something done “right”, you’ve gotta do it yourself.