Written by Jim Tankersley
President Donald Trump on Friday called on the Federal Reserve to cut interest rates and take additional steps to stimulate economic growth, his latest attempt to put the traditionally independent central bank under his thumb.
Speaking to reporters before traveling to the southwestern border, the president once again criticized the Fed’s interest rate increases in 2018, saying “they really slowed us down.” Trump, who is presiding over one of the longest sustained economic expansions in U.S. history, also said the Fed should do more to give the economy a lift — including resuming a stimulus program that he opposed when it began under President Barack Obama.
Trump’s comments came on the same day the Labor Department reported strong job growth, with employers adding 196,000 jobs last month. His remarks also coincide with his efforts to install allies at the Fed as he heads into a re-election campaign that will largely be a referendum on the state of the economy. While the economy is still strong and unemployment remains low, the effects of the president’s $1.5 trillion tax cut are waning and his trade war has begun to hurt some American industries, as well as contributing to slower growth in China. Most forecasters see growth slowing this year, though Trump’s advisers continue to see it speeding up.
But the president appears to be taking no chances. On Friday, he escalated his previous critiques of the Fed by pressing for it to resume the type of stimulus campaign it undertook after the recession to jump-start economic growth.
That program, known as quantitative easing, resulted in the Fed buying more than $4 trillion worth of Treasury bonds and mortgage-backed securities as a way to increase the supply of money in the financial system. As the economy recovered, the Fed began to reverse that program, slowly winnowing its portfolio of bonds in a process known as quantitative tightening.
“Well I personally think the Fed should drop rates,” Trump said. “I think they really slowed us down. There’s no inflation. I would say in terms of quantitative tightening, it should actually now be quantitative easing. Very little if any inflation. And I think they should drop rates, and they should get rid of quantitative tightening. You would see a rocket ship. Despite that, we’re doing very well.”
The Labor Department numbers signal a rebound from an unexpectedly lackluster February. It was the 102nd straight month of job gains. Wages were also up, with average hourly earnings in March 3.2 percent higher than a year earlier. And unemployment remained low at 3.8 percent.
The president has become increasingly bold in his efforts to influence the Fed, which he and his advisers blame for economic growth falling short of the 4 percent annual rate last year as he promised. He has repeatedly criticized his handpicked Fed chairman, Jerome H. Powell, and has described the central bank as a counterweight to his economic policies.
The Fed raised interest rates four times last year, to the current range of 2 percent to 2.25 percent, drawing frequent rebukes from Trump. Presidents typically avoid commenting on monetary policy.
But the Fed has since diverted from what had been a steady march of interest rate increases, in the face of stock market turmoil, growing domestic and global economic risks and pressure from Trump. The central bank does not expect to increase rates at all this year and has cut its growth projections to 2.1 percent for 2019.
As he enters the 2020 campaign, Trump is banking on a much faster pace of growth than the Fed and most economists say is likely. Global growth is moderating, with slowdowns in Europe and China underway. And there are signs of weakness in the United States, where chief executives see investment, hiring and sales growth all slowing this year and business economists say the risks of undershooting economic growth are higher than overshooting.
Democrats denounced Trump’s comments, saying they showed his disregard for the traditional independence of the Fed and his desire to use its powers to help him win re-election.
“There’s no question that President Trump is seeking to undermine the long-term stability of the economy and independence of the Federal Reserve to boost his own re-election prospects,” said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee.
Larry Kudlow, Trump’s top economic adviser, said Friday that the president was concerned about a global slowdown and wanted the Fed to ensure the American economy continued to grow.
“We are facing a worldwide slowdown. You know, recession, arguably,” Kudlow said in an interview on Bloomberg TV. “Europe is not doing well. Germany itself may be in recession. That troubles us.”
Kudlow denied that the president was trying to infringe on the Fed’s independence and said he simply wanted it to keep things thriving.
“We’re not pressuring. We’re not going after their independence,” he said. “We just don’t want any threats to this rebuilding, reviving, growing economy.”
But in recent days, Trump has made it increasingly clear that he will do what it takes to keep the Fed heading in the direction he wants.
The president said Thursday that he planned to nominate Herman Cain, a Republican who abandoned his 2012 presidential campaign in the face of sexual harassment allegations and who started a political action committee to combat what he claims is “misinformation” about Trump, to a seat on the Fed’s seven-member board. Trump also plans to nominate Stephen Moore, an adviser and conservative economist who has become a vocal critic of the Fed’s interest rate increases.
Those selections are a marked shift from his previous nominations to the board. The president has tended to tap largely conventional candidates, not loyalists or those with starkly contrarian views. His choice of Powell for chairman was seen as a vote for consistency on the Fed, given Powell’s approach was expected to be — and indeed has been — in line with his predecessor, Janet L. Yellen, who called for a moderate pace of rate increases.
Trump’s three other Fed appointments have also been fairly unsurprising — Richard Clarida, whom he appointed as vice chairman, was a Columbia University economist and a scholar in monetary policy. Randal K. Quarles, who oversees bank supervision, worked in the financial industry and at the Treasury Department in previous Republican administrations, and Michelle W. Bowman was the state bank commissioner of Kansas.
Wall Street analysts, economists and at least one Republican senator warned Friday that Trump’s choice of political actors could wind up compromising the Fed in a way that could be detrimental to the health of the economy.
“In our view, the selections could raise questions about the independence of the Federal Reserve and could be perceived as an attempted politicization of monetary policy,” researchers at Barclays wrote in a note to clients, adding, “the experience of each candidate does not seem to be the main reason the Trump administration is considering their nominations.”
Sen. Mitt Romney of Utah, who ran against Cain for the Republican nomination, told Politico that he would prefer nonpolitical appointees.
“I would like to see nominees that are economists first and not partisans,” Romney said.
It is unclear whether Moore or Cain, who have yet to be formally nominated, will be confirmed by the Senate. Trump has previously faced pushback on two of his Fed choices.
Nellie Liang, an economist and financial regulation expert, withdrew from consideration after financial industry lobbyists worked against her nomination and Senate Republicans made clear they would not vote to confirm her. And Marvin Goodfriend, a professor at Carnegie Mellon University and a former monetary policy adviser to the Federal Reserve Bank of Richmond, Virginia, languished in the last Congress after lawmakers questioned his previous views on inflation.
For now, most Senate Republicans have said they will wait for confirmation hearings before determining their votes.
Sen. Mitch McConnell of Kentucky, the Republican leader, has remained mum on both selections for the Fed. But aides and senators close to McConnell said he had made it clear he had no intention of moving ahead quickly with either nomination, giving the president and his staff ample time to vet both men and consider other candidates.