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In December 1965, President Lyndon Johnson summoned William McChesney Martin, Chairman of the Federal Reserve, to his Texas ranch and, after ordering everyone to leave the room, pushed him to stop the wall. raise interest rates.
million. Martin, famous for saying that the work of a central bank was to remove the punchbowl just when the party started, was holding and continued to raise interest rates. But in November 1966, he began to ease monetary policy – probably contributing to the "stagflation" that haunted the American economy in the 1970s – and was duly renamed in 1967.
That's what previous one that echoed last week. with the modern convention to publicly criticize the interest rate increases of the Federal Reserve. Although the president has not resorted to Johnson's physical approach and insisted that he would let the central bank "do what he thinks is best," his point of view was no less clear
. said in an interview on CNBC. "Because we go up and every time you go up, they still want to raise rates … I'm not happy about it."
Financial markets, accustomed to Donald Trump's atypical presidency, largely ignored his comments The dollar has been somewhat weakened, but the market for treasury bills has not moved and interest rate expectations – measured by futures on federal funds – have barely budged.Two additional increases this year are still widely expected, bringing the interest rate to 2.25-2.5%.
Expectations of a tightening of the Fed reflect Trump's fiscal stimulus, with annualized economic growth of 4% per cent in the last quarter as the bond market expects the Fed to cease tightening during the quarter. Next year, the United States currently stand out among the main savings in terms of growth and expected interest rates. This helped boost the dollar and short-term borrowing rates. Win Thin, a currency strategist at Brown Brothers Harriman, said the most notable impact on the dollar was mainly due to tense positioning in the market, rather than large investors making major changes in response to Mr. Trump. He is skeptical that even repeated comments could defeat the fundamentally oriented trajectory of interest rates or the dollar.
"No president ever wants higher rates, it's just that no one says it so bluntly," he said. "But Trump has no control over monetary policy or currencies, so he can do anything he wants."
The phlegmatic response to Mr. Trump's intervention is based on the fact that the current Fed Chairman, Jay Powell, is that Mr. Martin and the successor to President Nixon, Arthur Burns, which fanned the flames of stagflation by keeping the rates too low in the 1970s.
"I'm sure Jay Powell rolls his eyes or bangs his head against the wall. But that will probably not change much in his decision, "said Guy LeBas, chief fixed income strategist at Janney Capital Management. "In the margins, this could reduce the decision-makers' desire to raise rates, but it's a small, small factor among many others."
Also, the impact is that Mr. Trump's choices to fill the vacancies on the Fed's board of directors have been reassuring and unconventional, said Frederic Mishkin, professor of economics at Columbia Business School and ex-Fed. "We know that Trump is a" low interest guy ", as most real estate developers are, but we do not know how much pressure he will actually put on the Fed," he added. Former Fed Chairman Ben Bernanke has also been criticized by Republicans – although he has kept rates low – without affecting political decisions, Professor Mishkin said.
Indeed, another former senior Fed official said that the central bank was probably prepared for some kind of public attack since Trump's election. "The most predictable Trumpism of the last two years was that he would eventually complain about it," he said. Nevertheless, the comments have still irritated some investors, analysts and economists, and clearly "mark a worrying development for the institution, the markets and the economy," according to Krishna Guha, head of global strategy and policy. central bank strategy at Evercore ISI.
"Trump did not launch a full assault on the Fed's independence and could not do it anyway because the Fed is responding to Congress and not to the administration. it's not trivial either, "he said.
The question of whether last week was a punctual commentary from Mr. Trump or the beginning of a more sustained campaign against the US central bank and its policies
If this is the case, this could lead to two results: the Fed could become more cautious on a more restrictive monetary policy, fearing to become a more frequent target of the president's Twitter account [19659016] or more likely, he could even become a warmonger to avoid appearing unduly influenced by Mr. Trump.
The former head of the Fed said that it was the result the most likely, Mr. Trump's comments guaranteeing roughly a rise in t in September, whether the recent trade tension is intensifying or whether economic data indicate
"The board is now stuck in a rise in September," he argued. "Every central banker knows Arthur Burns' morality story, and no one wants to be the new Arthur Burns."
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