Former Fed chairs caution: Central bank must remain independent
The market expectations of further Fed rate cuts
Mellon Chief Economist Vincent Reinhart on the outlook for Federal Reserve policy.
Four former Federal Reserve chairs issued a dire warning on Tuesday: The U.S. central bank needs to remain independent and free of short-term political pressures.
In an op-ed published by The Wall Street Journal, Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen — who have all, at one point, headed the Fed, appointed and reappointed by six different presidents, both Republican and Democratic — stressed that the central bank and its chair must be able to operate "without the threat of removal or demotion of Fed leaders for political reasons."
"History, both here and abroad, has shown repeatedly, however, that an economy is strongest and functions best when the central bank acts independently of short-term political pressures and relies solely on sound economic principles and data," the economists wrote.
In the piece, Volcker, Greenspan, Bernanke and Yellen argued that while the Fed is an independent agency, it’s still held accountable by Congress — and has its powers appropriately checked.
"It is critical to preserve the Federal Reserve’s ability to make decisions based on the best interests of the nation, not the interests of a small group of politicians," the piece concluded.
President Trump has repeatedly attacked the Fed, and its current chairman, Jerome Powell, for raising interest rates too quickly — and last week, after policymakers lowered the benchmark federal funds rate for the first time in more than a decade, for not cutting rates enough. At one point, Trump opened the door to possibly stripping Powell, whom he hand-picked, of his chairmanship and leaving him as a governor.
The criticisms of Powell, and the Fed, are mostly unprecedented.
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After the Fed’s latest meeting, Trump renewed his criticisms, saying that Powell "let us down" after policymakers voted to modestly lower borrowing costs by 25 basis points.
"What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle," Trump said in a tweet. "As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!"