Trump Fed Threats Meet Firewall: GOP Legislators

GOP lawmakers succumbed to President Donald Trump on almost all contentious issues, but they broke away from him on a front that drew repeated anger from the president: the Federal Reserve.

Trump is pushing two Republican celebrities and Fed critics, Herman Cain and Stephen Moore, to sit on the central bank board with the goal of shaking and shaping the institution in the Trumpian way. He called on the Fed to lower interest rates despite strong economic growth. And he lashed out at the central bank for removing the extraordinary economic support put in place during the last recession.

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This could force congressional Republicans to play an unusual role: to rebel against Trump.

GOP lawmakers – who have often shown little restraint by demanding interest rates close to zero at the time of the Obama era – have publicly and privately declared their intention to keep politics at bay. the gap of the central bank. They generally support President Jerome Powell, and many opposed serious political interference in setting tariffs. Legislators intend to pressure Trump's nominees to subscribe to the Fed's data-based approach, fearing that the president will ask the central bank to pursue a policy that will upset the Fed. economy.

"The Fed usually has more information than us," said Sen. Richard Shelby (R-Ala.), A key member of the Senate Committee on Banking and Banks, who has jurisdiction over the Fed and is expected to approve appointments Moore and Cain. .

The Fed's appointments are the primary means available to the president to shape the institution, and Trump's selection of two declared political allies sounded the alarm over the fact that he was intensifying his efforts to influence the institution. Monetary Policy. Economists fear that Moore and Cain will undermine the Fed's political independence by focusing on the president's prospects of re-election rather than on what is best for the long-term health of the economy.

Moore and Cain both have close ties with the president. Moore was a Trump campaign advisor and regularly defends the president's program on television, including his accusations that the Fed would impede economic growth. He has already suggested that the central bank be abolished and called for Powell to be fired. Last year, Cain launched a super pro-Trump PAC and praised the president's "bold and transformative trade policies" for boosting the economy.

"It's a trend now," said Ian Katz, analyst at Capital Alpha Partners. "These guys are more political than the typical Fed candidate. … Cain has a [super] PAC whose express mission is to defend the president. "

Both men strongly supported the rise in interest rates under the Obama administration in order to "normalize" monetary policy, even when economic growth was slower than it is today. hui. Both are now keenly supporting Trump's call for lower rates.

Trump reinforced this call on Friday by asking the central bank to cut rates and revive the bond buying program launched during the recession to turn the economy into a rocket ship ".

But talks with many influential Republicans in the Senate and House show an irresistible confidence in the Fed under Powell, which was confirmed by the Senate in January 2018 by a vote of 84-13, one of the largest margins for a key Trump candidate.

"I leave decisions on interest rates to the Federal Reserve," said Sen. Jerry Moran (R-Kan.).

"I think that the administration is concerned about growth and has every right to weigh what our monetary policy should look like, but I would say that I support an independent Fed and the Fed must do what it is. it considers appropriate, "said the representative. Sean Duffy (R-Wis.) Said.

Powell is a familiar presence at Capitol Hill, having recorded nearly 100 meetings and phone calls with lawmakers last year, far more than his predecessor.

When reports revealed in December that Trump was planning to fire Powell about a rate hike this month, leading Republicans, including Senate-Bank Chairman Mike Crapo (R-Idaho), and the Senator Pat Toomey (R-Pa.) said the Fed chief did not deserve to be fired.

"After a long and dangerous experience of monetary policy led by others, President Powell has done much to restore normalcy," said Toomey at the time. "We should be grateful."

At the same time, GOP Senators have shown no sign of opposition to Moore, many citing the benefit of having divergent views within the Fed. But they also remained firmly respectful of the central bank on policy issues.

"At the end of the day, we are still in an extremely low interest rate environment," said Representative Bill Huizenga (R-Mich.), A prominent critic of the Fed's easy money policies led by former President Janet Yellen. "It's good that the Fed has suspended any further increase at this stage. But I tend to be more indifferent with the Fed. "

Other GOP lawmakers said they would trust the Fed if they agreed with Moore's view that the central bank should immediately cut interest rates by half a percentage point.

If the central bank took such dramatic measures, the fact that the economy – which had grown 2.9% last year – would slow down more and more, would be more and more worrisome. However, Moore's remarks reflect his view that the economy is deflating, although the data shows the opposite.

Moore and Cain contrast sharply with the four previous Trump candidates on the Fed board, including Powell, who had been classic Republican choices. His last two choices pleaded for a return to a gold standard, in which the value of the dollar is directly linked to the supply of the precious metal, an idea rejected by most traditional economists. Moore has called for the abolition of the Fed as recently as in 2015.

"I do not know how you are going to do that," said Shelby, when asked if he agreed with these positions. "It would be the end of inflation, but it could also be the end of growth."

Moore recently called for interest rates to be tied to commodity prices, notably in last month's Wall Street Journal op-ed, which prompted his bid for the Fed.

Notably, Moore and Cain would be just two of the seven members of the Fed's board of directors and two of the 12 officials who get a vote on the rate decisions, so they could not change the outcome of the vote by them -Same.

But their selection marks a turning point in Fed's approach to Trump, and their confirmation would have repercussions for the years to come; the mandates of the two open board seats end in 2024 and 2030, respectively. The two could also be online for the president when Powell's term ends in 2022, if Trump is re-elected.

JWM Verret, a law professor at George Mason University, who supports Moore's candidacy, said the Heritage Foundation economist would play an important role in favor of deregulation and argued that the Fed governors had long had political allegiances with a particular president or party.

"It's just less subtle, like everything about the Trump administration," he said.

He also welcomed the prospect of bringing new ideas to the Fed.

"It's as if an old VCR breaks and you snap it to turn it on," said Verret. "I think that's what we're going to achieve here."