- Four former leaders of the central bank have made a point to warn against the risks of politicized monetary policy.
- The warning appeared to be a rebuke of efforts by President Donald Trump and his administration to drive interest rates lower.
- The move came after more than a year of unprecedented pressure on the independent Federal Reserve.
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After more than a year of unprecedented White House pressure on the independent Federal Reserve, former leaders of the central bank have made a point to warn against the risks of politicized monetary policy.
The most powerful central bank in the world “must act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons,” Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen wrote in an op-ed published Monday in the Wall Street Journal. The four economists collectively served as chairpersons for the Fed across four decades and six presidents.
The warning appeared to be a rebuke of efforts by President Donald Trump and his administration to drive interest rates lower. Bloomberg reported in June that the White House this year looked into demoting the current chairman of the central bank, Jerome Powell, months after Trump discussed firing him. The White House did not respond to an email requesting comment.
“Even the perception that monetary-policy decisions are politically motivated, or influenced by threats that policy makers won’t be able to serve out their terms of office, can undermine public confidence that the central bank is acting in the best interest of the economy,” the op-ed said. “That can lead to unstable financial markets and worse economic outcomes.”
They stressed that governors, including the chair and vice chairs, can only be removed for cause and not for policy differences with political leaders. Such provisions and fixed terms – 14 years for board members and four years for leadership roles – were created to ward off political pressure.
Read more: Trump just tapped former economic adviser Judy Shelton for a Federal Reserve seat. She’s a fierce critic of the central bank who sees a gray area on its independence from the administration.
Pointing to strains from slower growth abroad and Trump’s escalating trade wars, the policy-setting Federal Open Market Committee cut interest rates by a quarter percentage point last week to a target range of between 2% and 2.25%.
Attacks on the Fed have become increasingly bold and frequent in recent months. Seeking to juice the economy ahead of the 2020 elections, Trump advisers have echoed the president’s calls for lower interest rates.
“The Federal Reserve before the end of the year has to lower interest rates by at least another 75 basis points or 100 basis points to bring interest rates here in America in line with the rest of the world,” White House trade adviser Peter Navarro told Fox News on Tuesday.
The president has separately sought to place political allies at the top of the central bank. His most recent nominations for governors include the former Trump campaign adviser Judy Shelton, an outspoken proponent of lower interest rates and unorthodox economic policy.
“When the current chair’s four-year term ends, the president will have the opportunity to reappoint him or choose someone new,” the op-ed continued. “We hope that when that decision is made, the choice will be based on the prospective nominee’s competence and integrity, not on political allegiance or activism.”