After mulling it over and coming to the self-evident conclusion that absolutely nothing could go wrong, Jerome Powell has told the White House he’s “open to their suggestion that he meet directly with President Trump”.
That’s according to the Wall Street Journal, whose Peter Nicholas and Paul Kiernan say White House officials “hope” such a “sit-down” might help to “defuse Trump’s anger over interest rate increases that he blames for dramatic market swings.”
This is obviously a terrible idea. It’s not so much that it’s a bad idea for a Fed chair to meet with the President. Rather, it’s a bad idea for a Fed chair to meet with this President, who has been whatever the polar opposite of “shy” is about demanding rate cuts.
Trump’s criticism of Powell has reached levels that can very fairly be described as “beyond the pale”.
In fact, if you’ve followed Turkish President Recep Tayyip Erdogan’s efforts to thwart the imaginary “interest rate lobby” (a cabal that exists largely in his mind and which, according to his imagination, is engaged in a covert effort to subvert his authority by keeping rates too high) over the years, you’d be hard-pressed to find Erdogan resorting to language that’s as harsh as that Trump has employed in criticizing Powell.
That’s not to say Erdogan hasn’t said some things in private that are outright murderous, but it is to say that when it comes to going public with criticism of a purportedly “independent” central bank, Trump seems like he might have a shot at one-upping Erdogan.
The point in going over this again is that having made this feud so public, the optics around a face-to-face between Trump and Powell would be absolutely horrible, especially if the hypothetical meeting were to take place behind close doors with nobody else present.
Powell would doubtlessly attempt to explain to Trump that part of the reason why the Fed is doing what it’s doing is to ward off a possible inflation overshoot that could materialize as a result of late-cycle stimulus and tariff-related price pressures. Indeed, it’s entirely possible that Powell could actually turn that into flattery. Something like this:
Well sir, as you know, your economic policies have resulted in a very strong U.S. economy. Wage pressures, while still subdued, are at post-crisis highs. Really, all we’re trying to do is make sure that America’s economy doesn’t become so ‘great again’ that it overheats, but rest assured we are cognizant of the possibility that our actions could undermine your ‘big league’ economic miracle.
Flattery might work in the moment, but Trump has made it abundantly clear that he expects the Fed chair to tacitly participate in trade wars, government shutdowns and the maintenance of stock market bubbles. In fact, it’s not even clear that “tacit” works there. Recall Trump’s “putt” tweet that pulled the rug from beneath the market on Christmas Eve:
The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!
— Donald J. Trump (@realDonaldTrump) December 24, 2018
He’s essentially asking Powell to underwrite the trade war by adopting loose monetary policy and engineer more stock market gains so any selloff doesn’t add to the political pressure he’s under thanks to the ongoing government shutdown.
In short, thanks to his penchant for shrieking on Twitter about what he wants from the Fed, lawmakers and the public can’t possibly be expected to believe that he (Trump) won’t push the same agenda in a private meeting with Powell.
Given that, any dovish lean from the Fed following such a meeting would be immediately criticized as having stemmed directly from Powell’s conversation with Trump. In other words, to the extent Trump’s tweets have already made it more difficult for Powell to lean dovish, a sit-down with the President would only make things worse.
Surely Powell understands that. Or maybe not. Because if the Journal is correct, he’s actually entertaining the idea, despite knowing that Trump is a man who once told the FBI Director this:
I need loyalty and I expect loyalty.
We all know how that turned out.