Donald Trump’s assertion that he has “better instincts” for setting interest rates than the Federal Reserve or its chairman does not appear to have weakened the dollar in international currency markets.
Markets appear skeptical that Trump would be able to undermine the independence of the Federal Reserve if elected, believing that the former president would be unable or unwilling to implement his plan.
Trump’s demand for an informal seat at the policy-setting table has drawn market comparisons to Richard Nixon’s influence over Federal Reserve Chairman Arthur Burns. Many see him as Worst Fed Leader in HistoryBurns presided over the stagflation — high inflation and low growth — of the 1970s in part because, historians say, he was too weak to stand up to the White House.
“Nixon…had a strong influence on then-Fed Chairman Burns,” Paul Donovan, chief economist at UBS Global Wealth Management, warned in an article in the New York Times. Research note For customers on Friday.
But the U.S. dollar index, which tracks the world’s reserve currency against a basket of currencies, has so far shown no sign of weakening. After three straight days of gains, it was largely flat at 103.19 in early trade.
“Investors seem to have tended to dismiss Trump’s more extreme economic policies as a case of the former president’s lack of seriousness,” Donovan added. “If there is evidence that Trump He was “If we are serious about these policies, the markets are likely to react.”
Trump has been an active, vocal and frequent critic of Federal Reserve Chairman Jerome Powell throughout his presidency, but his comments at a news conference Thursday were a clear signal that he is considering taking more aggressive action.
“I feel like the president should have at least a say there,” he told reporters at his Mar-a-Lago residence. “I think I have a better instinct than, in many cases, the people who would be at the Fed, or the chairman,” he added, because “he’s made a lot of money.”
This comes on the heels of a story published by Wall Street Journal In April, Trump stated that he wanted to be He was consulted. Before the Fed’s Federal Open Market Committee set interest rate policy, a report whose significance his campaign downplayed at the time.
Strict walls separate monetary and fiscal policy
Central bank independence is sacrosanct to modern industrial economies—it is an important element of checks and balances in managing the economy, much like the separation of powers between the three branches of government in the United States.
Even a hint of blurring these lines could be damaging, which is one reason the Fed has seriously avoid Commenting on the dollar exchange rate, which falls under the purview of the US Treasury, he pointed to a prominent recent example of controversy involving former Federal Reserve Chair Janet Yellen, Biden’s cabinet secretary and responsible for managing the government’s portfolio.
Last month, prominent economist Nouriel Roubini accused it of “usurping the core functions of the Fed” and undermining its restrictive monetary policy. Before the November elections By engaging in some kind of Quantitative easing through the back door.
By shifting toward issuing more short-term bonds at the expense of the benchmark 10-year note, Yellen claimed she had artificially reduced the supply of these bonds, pushing yields on the long end of the curve lower.
Not only is this good for the housing market, but the effect is believed to be the equivalent of a stealth interest rate cut — a claim Yellen was forced to deny amid outcry from Republicans.
Trump: I think the US president should have a say in the Fed’s actions
Erdogan the blond
— Rajip Soylu (@ragipsoylu) August 8, 2024
It is not difficult, then, to imagine the damage that could be done if the head of state intervened directly and forcefully in monetary policy. Indeed, there is already ample evidence.
Turkish President Recep Tayyip Erdogan has repeatedly mismanaged his currency by firing central bank governors who pushed for higher interest rates. Turning conventional wisdom upside downThe Turkish president said that only low borrowing costs can combat rising consumer prices.
The official inflation rate reached 75% for the month. maybealthough it has since declined.
After learning of Trump’s plan to encroach on the independence of the Federal Reserve, Middle East Eye“The blond Erdogan,” said Rajip Soylu, the bureau chief of the official Turkish news agency in Turkey, about the Republican candidate.