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Four former fed chairmen are fretting. Mr Trump is playing havoc with American finance

The fed must enjoy the right to act independently “free from short-term political pressures”, they said.

On August 5, four former federal reserve chairmen — Paul volcker, Alan greenspan, Ben bernanke and janet yellen — issued a rare joint article in the Wall Street journal, stressing that “the United States needs an independent federal reserve.”

What did they say

The four former fed chairmen were linked in terms of tenure, leading the central bank from 1979 to 2018, the equivalent of the us central bank but with far greater power than other central Banks. Any one of them with an opinion about the fed is bound to be “earth-shattering”, and these days the four rarely sing in unison and their weight is self-evident.

In the joint article, the four began by stating that the fed must have the right to act independently “without short-term political pressure”. They said the fed must “do a better job of ensuring that it is not influenced by partisan and political assessments and that its decisions should be based on an analysis of the longer-term economic interests of us citizens rather than short-term political considerations”.

In fact, that’s exactly what the fed set up and positioned its role to be. In theory, the fed was set up and functionally designed precisely to move away from bipartisan electoral politics, creating too many, too often shocks to monetary policy that require stability, strategy and foresight.

The federal reserve is legally neutral and is not subject to the control of the executive or legislative branches. Since 1977, it has been authorized by congress to set policies independently to stabilize prices, promote the labor market to full employment, and maintain stable long-term interest rates.

Not only that, but each of the fed’s seven members has a 14-year tenure, which is 175 per cent of the US President’s maximum of two eight-year terms. And each member’s term is staggered, will not be due to expire at the same time and the federal reserve “big change” phenomenon. Thus, although members are nominated by the President and approved by the senate, there is a limit to the number of members each President can nominate, largely offsetting the impact of party politics on us monetary policy.

The four “senior chairmen” have served six democratic and republican presidents, and while not every incumbent has been pleased with the fed’s conduct, they have generally shown due respect for its “hyper-partisan independence” and professionalism.

As many American commentators have said, “the fed should devote itself to the study and formulation of medium – and long-term financial policy strategies, and stay out of party politics and election cycles”. These are the rules of the game in contemporary American political life, and there is no reason to bother four former presidents.

The implication of not naming names

The problem is that the current President, Donald trump, is a willful individual with no regard for the rules of the game.

Since the second half of last year, Mr Trump has been hinting and signalling that not only should the fed not raise rates, it should cut them again to stimulate the us economy. When the fed and its current chairman, colin Powell, showed “independence”, he not only publicly pressed it but also hurled insults at it.

In November 2018, for example, he lambasted Mr Powell for “never being satisfied with him” and “being stupid”. He called the fed “crazy and out of control”. In December, he caused a stir by repeatedly warning the fed not to “make any more mistakes” and being caught in the media privately consulting cabinet members on “whether the President has the power to fire the fed chairman.” So much so that Treasury secretary mnuchin had to tweet a perfunctory note that “trump never suggested it and said he didn’t think he had the right to do it.”

In an interview with the fox business network on June 25, Mr Trump said he had “the power to downgrade or remove the fed chairman” and threatened to replace him with Mario draghi, President of the European central bank.

Under a trump a wave height wave pressure on July 31, the federal reserve in a row after a two-day policy meeting announced to cut interest rates by 25 basis points, the federal funds rate target range down to 2% – 2.25%, this is the United States since the first cut since December 2008, also let the fed had earlier insist for a long time and continuous nine times by means of raising interest rates, an abrupt twisted a 180 °.

Such game-breaking administrative intervention, political pressure, and the naked partisanship and electoral considerations behind it are what the four former fed chairmen and the many economists behind them most fear and cannot tolerate.

As four former fed chairmen have argued in columns, history has shown that the U.S. economy can function smoothly only when the fed can rise above short-term political considerations and election cycles and rely solely on sound economic principles and data to analyze and shape financial policy.

Recent developments suggest that today’s fed decisions have been hampered by the federal government, party interests and electoral strategy.

It’s not a bailout, it’s a bailout.

Mr Trump’s volatility and his blatant intervention in the fed’s financial policies have created huge volatility and uncertainty in us and global financial markets. At a time when four former fed chairmen are speaking out, it is hard to avoid being given a “rescue” by investors.

But in the minds of the fed’s old men and their supporters, there is a greater fear of self-help: if trump cannot be forced through his efforts as soon as possible to recognize and clarify the fed’s right and freedom of “non-partisan, non-election cycle, independent analysis and decision-making”, the whole fed “fundamental board” will collapse.

Since the end of last year, Powell has been giving in to the pressure of trump’s aggression, showing that the “Powell fed” has become a dead end. Before the 2020 election, its policies are bound to be constrained by the electoral needs of the trump administration and the republican party, something the “old men” know they can do little about. But with Powell’s first four-year term coming to an end in February 2022, trump has the right to reappoint him or nominate a replacement.

When Mr Trump wields similar power, he has often displayed the petulance of “going with the flow, going against the flow”. If he is obsessed with nominating judges to America’s federal courts, he will want to secure the nomination of his choice. He would rather let the arbitration mechanism “rot” than compromise on the recommendation of WTO arbitrators whom he could not do as he pleased.

In the joint article, the four former chairmen said they “expect the President to choose a new fed chairman in the future on the basis of competence and integrity, not political loyalty or identification”, almost pointedly telling Mr Trump to “keep his hands off”.

Reason is obvious: if not trump of the fed’s independence, professionalism and long linear basic “rules of the game” to give a clear identity, it will make the U.S. economy, the financial crisis is still difficult to conclude that, but it can be concluded that this would detachment run dozens of years, the federal reserve system, and its attached to the people, things, things, all have to face the unprecedented crisis.

Ford Austin

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