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Trump Says Fed Should Cut Rates and Lift Economy Trump Says Fed Should Cut Rates and Lift Economy
(about 4 hours later)
President Trump on Friday called on the Federal Reserve to cut interest rates and take additional steps to stimulate economic growth, his latest attempt to put the traditionally independent central bank under his thumb. WASHINGTON — President Trump on Friday called on the Federal Reserve to cut interest rates and take additional steps to stimulate economic growth, his latest attempt to put the traditionally independent central bank under his thumb.
Speaking to reporters before traveling to the southern border, Mr. Trump once again criticized the Fed’s interest rate increases in 2018, saying “they really slowed us down.” The president, who is presiding over one of the longest sustained economic expansions in United States history, also said the Fed should do more to give the economy a lift. Speaking to reporters before traveling to the southwestern border, the president once again criticized the Fed’s interest rate increases in 2018, saying “they really slowed us down.” Mr. Trump, who is presiding over one of the longest sustained economic expansions in United States history, also said the Fed should do more to give the economy a lift — including resuming a stimulus program that he opposed when it began under President Barack Obama.
Mr. Trump’s comments coincide with his efforts to install allies at the Fed as he heads into a re-election campaign that will largely be a referendum on the state of the economy. While the economy is still strong, the effects of Mr. Trump’s $1.5 trillion tax cut are waning and his trade war has begun to hurt some American industries, as well as contributing to slower growth in China. Mr. Trump’s comments coincide with his efforts to install allies at the Fed as he heads into a re-election campaign that will largely be a referendum on the state of the economy. While the economy is still strong and unemployment remains low, the effects of the president’s $1.5 trillion tax cut are waning and his trade war has begun to hurt some American industries, as well as contributing to slower growth in China. Most forecasters see growth slowing this year, though Mr. Trump’s economic advisers continue to see it speeding up.
Mr. Trump said on Thursday that he planned to nominate Herman Cain, a Republican who abandoned his 2012 presidential campaign in the face of sexual harassment allegations, to a seat on the Fed’s seven-member board. Mr. Trump also plans to nominate Stephen Moore, an adviser and conservative economist who has become a vocal critic of the Fed’s interest rate increases, to the central bank’s board. But the president appears to be taking no chances. On Friday, he escalated his previous critiques of the Fed by pressing for it to resume the type of stimulus campaign it undertook after the recession to jump-start economic growth. That program, known as quantitative easing, resulted in the Fed buying more than $4 trillion worth of Treasury bonds and mortgage-backed securities as a way to increase the supply of money in the financial system. As the economy recovered, the Fed began to reverse that program, slowly winnowing its portfolio of bonds in a process known as quantitative tightening.
Mr. Trump, escalating his previous critiques of the Fed, called on Friday for policymakers to return to a policy of so-called quantitative easing: buying assets like Treasury bonds and mortgage-backed securities as a way of stimulating economic growth. The Fed gobbled up more than $4 trillion worth of bonds, increasing the supply of money in the financial system and encouraging investors to get back into the market. “Well I personally think the Fed should drop rates,” Mr. Trump said. “I think they really slowed us down. There’s no inflation. I would say in terms of quantitative tightening, it should actually now be quantitative easing. Very little if any inflation. And I think they should drop rates, and they should get rid of quantitative tightening. You would see a rocket ship. Despite that, we’re doing very well.”
The Fed has since stopped the practice and, until recently, had been going in reverse — slowly winnowing its huge balance sheet, a process known as quantitative tightening. The comments came on the same day the Labor Department reported strong job growth, with employers adding 196,000 jobs last month, a rebound from an unexpectedly lackluster February. It was the 102nd straight month of job gains. Wages were also up, with average hourly earnings in March 3.2 percent higher than a year earlier. And unemployment remained low at 3.8 percent.
“Well I personally think the Fed should drop rates,” Mr. Trump said. “I think they really slowed us down. There’s no inflation. I would say in terms of quantitative tightening it should actually now be quantitative easing. Very little if any inflation. And I think they should drop rates, and they should get rid of quantitative tightening. You would see a rocket ship. Despite that we’re doing very well.”
Larry Kudlow, Mr. Trump’s top economic adviser, said on Thursday that the president was not trying to infringe on the Fed’s independence but said he wants to ensure the Fed’s actions encourage economic growth.
“We’re not pressuring. We’re not going after their independence,” he said in an interview on Bloomberg Television. “We just don’t want any threats to this rebuilding, reviving, growing economy.”
The president has become increasingly bold in his efforts to influence the Fed, which he and his advisers blame for economic growth falling short of the 4 percent annual rate last year as he promised. He has repeatedly criticized his handpicked Fed chairman, Jerome H. Powell, and has described the Fed as a counterweight to his economic policies.
The president’s comments came amid an economy that, despite some signs of weakness, continues to be doing quite well. The Labor Department reported on Friday that employers added 196,000 jobs last month, a rebound from an unexpectedly lackluster February. Economic analysts surveyed by FactSet had expected a gain of about 170,000 jobs in March. It was the 102nd straight month of job gains.
[Read more about the March jobs report, which showed a return to solid growth.][Read more about the March jobs report, which showed a return to solid growth.]
The Fed raised interest rates four times last year, to the current range for its target interest rate of 2 percent to 2.25 percent, drawing frequent and historically unusual criticism from Mr. Trump in the process. The president has become increasingly bold in his efforts to influence the Fed, which he and his advisers blame for economic growth falling short of the 4 percent annual rate last year as he promised. He has repeatedly criticized his handpicked Fed chairman, Jerome H. Powell, and has described the central bank as a counterweight to his economic policies.
But the Fed has since diverted from what had been a steady march of interest-rate increases, in the face of stock market turmoil, growing domestic and global economic risks and pressure from Mr. Trump. The central bank projects a slower pace of economic growth this year than in 2018 and has cut its growth projections to 2.1 percent. The Fed raised interest rates four times last year, to the current range of 2 percent to 2.25 percent, drawing frequent rebukes from Mr. Trump. Such criticism is unusual for presidents, who typically avoid commenting on monetary policy.
At the Fed’s most recent meeting, in March, Mr. Powell emphasized that the central bank would take a “patient” approach, and he did not rule out cutting interest rates if data showed the economy faltering. But the Fed has since diverted from what had been a steady march of interest rate increases, in the face of stock market turmoil, growing domestic and global economic risks and pressure from Mr. Trump. The central bank does not expect to increase rates at all this year and has cut its growth projections to 2.1 percent for 2019.
Mr. Kudlow acknowledged that the White House, which has continued to project robust economic growth at home, is concerned about economic distress abroad. As he enters the 2020 campaign, Mr. Trump is banking on a much faster pace of growth than the Fed and most outside economists say is likely. Global growth is moderating, with slowdowns in Europe and China underway. And there are signs of weakness in the United States, where chief executives see investment, hiring and sales growth all slowing this year and business economists say the risks of undershooting economic growth are higher than overshooting.
“We are facing a worldwide slowdown. You know, recession, arguably,” Mr. Kudlow said. “Europe is not doing well. Germany itself may be in recession. That troubles us.” Larry Kudlow, Mr. Trump’s top economic adviser, said on Friday that the president was concerned about a global slowdown and wanted the Fed ensure the American economy continued to grow.
Lawrence Summers, a former Treasury secretary under President Bill Clinton and the chairman of the National Economic Council under President Barack Obama, said Mr. Trump’s comments suggested the president’s “raw, total confusion” on monetary policy. “We are facing a worldwide slowdown. You know, recession, arguably,” Mr. Kudlow said in an interview on Bloomberg TV. “Europe is not doing well. Germany itself may be in recession. That troubles us.”
“The president publicly debating the Fed undermines confidence in our currency and our country,” Mr. Summers said in an interview. “Easing is probably premature. And if we were going to ease, the right way would be rate cuts, not bond buying.” Mr. Kudlow denied that the president was trying to infringe on the Fed’s independence and said he simply wanted it to keep things thriving.
Mr. Trump’s selection of Mr. Moore and Mr. Cain for the Fed board is a marked shift from his previous nominations. The president has tended to tap largely conventional candidates for the seven-member Fed board, not loyalists or those with starkly contrarian views. His choice of Mr. Powell for chairman was seen as a vote for consistency on the Fed, given Mr. Powell’s approach was expected to be — and indeed has been — in line with his predecessor, Janet L. Yellen, who called for a moderate pace of rate hikes. “We’re not pressuring. We’re not going after their independence,” he said. “We just don’t want any threats to this rebuilding, reviving, growing economy.”
His three other Fed appointments have also been fairly unsurprising choices — Richard Clarida, whom he appointed as Fed vice chairman, was a Columbia University economist and a scholar in monetary policy. Randal K. Quarles, who oversees bank supervision, worked in the financial industry and at the Treasury Department in previous Republican administrations and Michelle W. Bowman was the state bank commissioner of Kansas. But in recent days, Mr. Trump has made it increasingly clear that he will do what it takes to keep the Fed heading in the direction he wants.
Still, Mr. Trump has already faced some pushback on his Fed choices. Two of his original nominees failed to gain approval in the Senate. Nellie Liang, an economist and financial regulation expert, withdrew her name from consideration after Senate Republicans made clear they would not vote to confirm her. And Marvin Goodfriend, a professor at Carnegie Mellon University and a former monetary policy adviser to the Federal Reserve Bank of Richmond, Va., languished in the last Congress after lawmakers questioned his previous views on inflation. The president said on Thursday that he planned to nominate Herman Cain, a Republican who abandoned his 2012 presidential campaign in the face of sexual harassment allegations and who started a political action committee to combat what he claims is “misinformation” about Mr. Trump, to a seat on the Fed’s seven-member board. Mr. Trump also plans to nominate Stephen Moore, an adviser and conservative economist who has become a vocal critic of the Fed’s interest rate increases.
Whether the Senate would confirm either Mr. Moore or Mr. Cain remains unclear. For now, most Senate Republicans have said they will wait for confirmation hearings before determining their vote. Those selections are a marked shift from his previous nominations to the board. The president has tended to tap largely conventional candidates, not loyalists or those with starkly contrarian views. His choice of Mr. Powell for chairman was seen as a vote for consistency on the Fed, given Mr. Powell’s approach was expected to be — and indeed has been — in line with his predecessor, Janet L. Yellen, who called for a moderate pace of rate increases.
Mr. Trump’s three other Fed appointments have also been fairly unsurprising — Richard Clarida, whom he appointed as vice chairman, was a Columbia University economist and a scholar in monetary policy. Randal K. Quarles, who oversees bank supervision, worked in the financial industry and at the Treasury Department in previous Republican administrations and Michelle W. Bowman was the state bank commissioner of Kansas.
Wall Street analysts, economists and at least one Republican senator warned on Friday that Mr. Trump’s choice of political actors could wind up compromising the Fed in a way that could be detrimental to the health of the economy.
“In our view, the selections could raise questions about the independence of the Federal Reserve and could be perceived as an attempted politicization of monetary policy,” researchers at Barclays wrote in a note to clients, adding, “the experience of each candidate does not seem to be the main reason the Trump administration is considering their nominations.”
Senator Mitt Romney of Utah, who ran against Mr. Cain for the Republican nomination, told Politico that he would prefer nonpolitical appointees.
“I would like to see nominees that are economists first and not partisans. I think it’s important that the Fed be a nonpartisan entity,” Mr. Romney said. “The key is that someone is outside of the political world and is an economic leader, not a partisan leader.”
It is unclear whether Mr. Moore or Mr. Cain, who are still undergoing background checks and have yet to be formally nominated, will be confirmed by the Senate. Mr. Trump has previously faced pushback on two of his Fed choices, neither of whom were considered highly contentious but nonetheless failed to gain traction.
Nellie Liang, an economist and financial regulation expert, withdrew from consideration after financial industry lobbyists worked against her nomination and Senate Republicans made clear they would not vote to confirm her. And Marvin Goodfriend, a professor at Carnegie Mellon University and a former monetary policy adviser to the Federal Reserve Bank of Richmond, Va., languished in the last Congress after lawmakers questioned his previous views on inflation.
For now, most Senate Republicans have said they will wait for confirmation hearings before determining their votes.
Senator Mitch McConnell of Kentucky, the Republican leader, has remained mum on both selections for the Fed. But aides and senators close to Mr. McConnell said that he had made it clear that he had no intention of moving ahead quickly with either nomination, giving the president and his staff ample time to vet both men and consider other candidates.