Former Federal Reserve Vice Chairman Stanley Fischer predicted President Donald Trump won’t renominate Jerome Powell for another term as the U.S. central bank’s chairman if re-elected, undercutting the Fed’s autonomy.
“That will lead to very different monetary policy, so the Fed is not fully independent of politics,” Fischer said on Sunday at a talk in Israel.
By criticizing Fed policy, Trump created “a really awkward thing” for Powell, Fischer said. He added that he’s been in a similar hotseat before, having had a tough time maintaining central bank independence when he was governor of the Bank of Israel from 2005 to 2013.
Trump has frequently harangued Powell, his handpicked nominee, for raising interest rates and has accused him of not doing enough to bolster the economy.
Nothing to Lose
Fischer said Trump has nothing to lose from accusing the Fed of fueling a recession by raising interest rates at its December meeting: He can either claim to be correct if there’s a recession or go quiet if the prediction doesn’t pan out.
“What the president has understood is that he can have a one-way bet by announcing what he thinks they should have done,” Fischer said Sunday at a workshop at the Interdisciplinary Center Herzliya. “He has a perfect option and he will use it, and he’s much more sophisticated in the media, I think, than previous presidents have been.”
Fischer, appointed as the Fed’s vice chairman by President Barack Obama in 2014, resigned early effective October 2017, citing personal reasons.
Fischer also said there was a good chance the Fed wouldn’t have raised borrowing costs in December if Trump had been less vocal, adding: “It’s not a desirable thing to have the president pronouncing on monetary policy.”
When it comes to assaults on central bank independence, Fischer knows whence he speaks. When Bank of Israel governor, he said, “I found central bank independence to be a very difficult thing” to handle.
Not that he spoke of being pressured on policy matters. Rather, he said, he was sometimes asked to weigh in on matters he couldn’t professionally address.
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