J.D. Vance has endorsed former President Donald Trump's call for the White House to have “a say” over the Federal Reserve's interest rate policies — a view that runs counter to decades of economicresearch suggesting that politically independent central banks are essential to controlling inflation and maintaining confidence in the global financial system.
“President Trump is saying, I think, something that’s really important and actually profound, which is that the political leadership of this country should have more say over the monetary policy of this country,” the Republican vice presidential nominee said in an interview over the weekend. “I agree with him."
Last week, during a news conference, Trump responded to a question about the Fed by saying, “I feel the president should have at least a say in there, yeah, I feel that strongly.”
Economists have long stressed that a Fed that is legally independent from elected officials is vital because politicians would almost always prefer for the central bank to keep interest rates low to juice the economy — even at the risk of igniting inflation.
“The independence of the Fed is something that not just economists, or investors, but citizens should place a high value on,” said Carl Tannenbaum, chief economist at Northern Trust, a wealth management firm.
Tannenbaum pointed to the recent experience of Turkey, where the autocratic President Recep Tayyip Erdogan forced the nation’s central bank to cut rates in response to inflation, with “horrible results.” Inflation spiked above 65% before Erdogan appointed different leaders to the central bank, who have since raised its key rate to 50% — nearly 10 times the Fed’s current rate of 5.3%.
By adjusting its short-term interest rate, the Fed influences borrowing costs for consumers and businesses, including for mortgages, auto loans, and credit card borrowing. It can raise its rate, as it did in 2022 and 2023, to cool spending and bring down inflation. The Fed also often cuts its rate to encourage borrowing, spending, and growth. At the outset of the pandemic, it cut its rate to nearly zero.
On Saturday, Vice President Kamala Harris said she couldn’t “disagree more strongly" with Trump's view.
“The Fed is an independent entity and, as president, I would never interfere in the decisions that the Fed makes,” she said.
President Richard Nixon's pressure on Fed Chair Arthur Burns to keep rates low leading up to the 1972 presidential election has been widely blamed for accelerating rampant inflation that wasn't fully controlled until the early 1980s, under Fed Chair Paul Volcker.
Tannenbaum warned of potentially serious consequences if the Trump-Vance proposal for the White House to have some role in Fed policymaking were to take effect
“If it does carry through to proposed legislation ... that’s when I think you would begin to see the market reaction that would be very negative,” he said. “If we ignore the history around monetary policy independence, then we may be doomed to repeat it.”
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