At 10:15 this morning, Federal Reserve Chairman Jerome Powell had a joint discussion with former Chair Janet Yellen and former Chairman Ben Bernanke at the American Economic Association and Allied Social Science Association 2019 Annual Meeting, in Atlanta, Georgia. The three presented a united front on a wide range of issues. But one issue which stood out was the rebuke of Donald Trump and his political interference with the Fed.
The Fed's rebuke of Donald Trump
Powell said he has received no instructions whatsoever from the White House regarding rate policy. And when asked directly whether he would resign if asked to do so, Chairman Powell gave a quick and resounding no. The inference behind the question was that US President Trump might ask Powell to resign because he had become dissatisfied with Fed policy, deeming it too hawkish. And so, that exchange set up a range of responses from the three Fed Chairs, all of which demonstrated that the Fed would fight tooth and nail to maintain its independence from the executive branch.
Bernanke began the round of responses about political interference, responding to a question about his relationship with Presidents during his time as Chairman. He remarked that he had already been the head of George W. Bush's Council of Economic Advisors. So he had a good pre-existing relationship with the President. He went on to note that he had been re-elected by Obama and enjoyed a good relationship with him too.
Bernanke also said directly that the Fed is a non-partisan institution. From his remarks, it was clear he wanted to imply that his service to two Presidents from different parties and the good relationship he had with each demonstrated the non-partisan nature of the Fed. And pointedly, he remarked that Obama was once at pains to tell foreign media that criticized Fed policy that Obama as President had no control over Fed policy whatsoever. The inference was that Obama respected Fed independence, and this helped to support a good relationship between the Fed and the executive branch. Asked if he saw "Trump's approach as problematic", Bernanke answered that he did.
Is Trump a danger to good monetary policy?
When asked if Trump posed a danger to the Fed's ability to conduct good monetary policy, Yellen said, only if it impacted the public's perception of the Fed's independence. And her worry is that, if he kept at it, it would do. Powell spoke immediately following. He actually interrupted the moderator to add to Janet Yellen's comments about independence in a very direct rebuke of Trump. He made a direct plea to the public, saying it needed to know that the Fed has a "very strong culture". He said that the Fed is non-political and committed only to upholding its Congressionally-enacted mandate.
He went on to say that the Fed had a very robust data-driven institutional culture, which cherished its independence. He was implying that were Trump to make an attempt to remove Powell, it would have zero impact on Fed policy because the Powell operates within a well-established consensus at the Fed. The institution would always be independent of the executive branch and that nothing would cause that to change.
This is the strongest possible warning to Trump to not interfere in the Fed's policy actions. He was mentioned by name and said to be out of bounds with his commentary. Further, all the Fed chairmen agreed nothing he says or does will change the Fed's approach. So, Trump is simply whistling in the wind.
The video is here.
There was a lot to chew on regarding future policy too. I will talk about the implications of the Fed chairs comments for future Fed policy choices in another post to follow for paid subscribers.