Federal Reserve pushes efforts to be politicized by Trump for the moment

Federal Reserve Chairman Jerome Powell has made it clear that the Fed would not bow to President Donald Trump's will, and so far the central bank seems to have won.

In a city where Trump has managed to impose on many institutions, the Federal Reserve's influence policy is not in fact part of it. This was proved on Thursday when Stephen Moore became the second of Trump's two controversial potential candidates to withdraw from the process, not a surprise in Washington where it would appear that he would not receive enough support in the Senate.

But Trump will probably try again because the Fed and Powell have not listened to calls for lower interest rates or initiated a program of quantitative easing, a policy initiated by the Fed during the financial crisis and has since taken his retirement.

"Trump considers loyalty first and foremost and needs people loyal to the Fed, and he will look for someone else in the same mode of loyalty as Herman Cain and Stephen Moore," said Tom Block. policy strategist from Washington at FundStrat. "As many have pointed out, Trump's previous choices were strong economists who got their seat, then he tried to convince the Fed to stay loyal and it's hard to find anyone."

Moore stated that he was retiring because the attacks on his character became untenable for himself and his family. Block said that several Republican senators, including Iowa Senator Joni Ernst, would probably not support him because of controversial remarks he made about women.

But Moore's exit was considered positive by those who thought Trump was trying to politicize the Fed.

"The failure of the two potential candidates to gain ground, I think, suggests that there is strong bipartisan support for maintaining the Fed's independence and Fed policy because the fact that the senators came back and said that it did not seem quite right, gives you indicates that there are places where you can inject politics and places where you would prefer not to go there " said Michael Gapen, chief US economist at Barclays. "We believe that the leadership candidates of the Federal Reserve should be chosen for their insight and true monetary policy, not for their political allegiances."

Moore and Herman Cain, a former pizza executive, who retired earlier, have been criticized for altering their earlier hawk tones in order to adapt them to Trump's demands for an easier Fed policy. Cain, the presidential candidate of the GOP in 2012, had presented a tax plan at the time that advocated the return to the gold standard, and Moore had been his adviser.

Both candidates had related experience. Moore holds a Master's degree in Economics from George Mason University. He has also been a member of the Cato Institute, the Club for Growth and the Heritage Foundation. The Wall Street Journal Editorial Committee. Cain was chairman and vice-chairman of the two Omaha branches of the Kansas City Federal Reserve and the Kansas City Federal Reserve.

While the Fed was meeting earlier this week, Trump tweeted criticism of the Federal Reserve's policy and called for a 1 percentage point rate cut and a return to the financial crisis policy. quantitative easing. He blamed the Fed for slowing the economy. Moore has supported rate reductions in recent comments.

Powell has publicly stated that the Fed was not influenced by the White House. Yesterday, he said that the Fed did not consider lowering interest rates. When he spoke to the media after the Fed meeting, he reiterated that the Fed was patient and that it was not ready to act back and forth. He also said the Fed did not see low inflation as a persistent problem that would require policy change. In other words, he indicated that there was no rate reduction currently under review by the Fed.

"Powell said the committee was not worried about too low inflation that would seem to exclude a rate cut for the time being.This will give the Trump government a little bit of reason as it tries to spawn faster growth rocket ships that can hand over the president to the White House for a second term, "wrote Chris Rupkey, chief financial economist at MUFG, following Powell's briefing on Wednesday.

If Powell seemed to be influenced by the president, it would have a negative effect on the financial markets.

"Because [the dollar] is the reserve currency and will remain the reserve currency, it is imperative that we have a strong monetary structure that the independent Fed has maintained, "Block said.

The risk is that even if the Fed does not respond to Trump's criticisms, his tweets and other attacks could undermine his credibility.

"The perception on the financial markets has been skewed about the motives of the Fed because of the president's rhetoric," said Diane Swonk, chief economist at Grant Thornton. When Powell and the Fed announced that they would take a break in the rising rate cycle after the December rally, it was due to economic signals and not Trump's calls for easier politics, she said.

"The Fed was already worried at the beginning of November," she said. "These are legitimate concerns.They had commented before.This was not a revolutionary split, it was an evolutionary pivot."

Swonk said that he had had moments when it seemed like the Fed had become more hawkish before the elections, just to show that it was not supporting politicians politically in place.

"There is no victory in this game. Powell will play in a straight line," she said. .

The strategists explained that his last appointments were mediocre and that other factors, such as trade negotiations, could wait a while before Trump presented another candidate.

For investors, it is important that Powell continue to appear to ignore Trump's attacks.

"Powell strives to make clear, and he did so at the press conference, to make it clear that they will not be sensitive to political pressures," said Lori Calvasina, strategist US stock at RBC. "This is also what equity investors want, and I do not think equity investors would react positively if they thought the Fed was reacting to the White House.

She said she expects the Fed to continue weighing the policy regardless of the policy. "I think they're going to try to fix that and do their best work … I do not feel like they're going to try to lean in one way or the other. of another, said Calvasian.