President Donald Trump has spent his time in office in a twisted relationship with the Federal Reserve Bank, The Federal Reserve was established to be the guardian of our baking system, and to operate independent of political influence. However, President Trump likes to shape government institutions in ways that will serve his interests. This is hardly surprising, given his dislike of institutions in general, particularly those that do not immediately bend to his will without question
As of now, the Federal Reserve has two vacant seats on its board of governors who play an important role in how America’ s central bank conducts its business. Recently, Trump announced that he would be appointing two highly controversial figures to fill these vacancies. Failed Republican presidential candidate and pizza chain executive Herman Cain was his first pick, followed by economic commentator and far right talking host Stephen Moore.
There are significant reasons why these selections could raise eyebrows for those concerned about the traditionally independent Fed being swayed in a political direction. We will examine that in more detail in the analysis section of this report but as one might glean, the strong political affiliations of men such as Cain and Moore does not bode well for an institution that needs to remain independent and nonpartisan in order to properly do its job. Trump’s decision to nominate them was quick to garner opposition from both sides of the aisle.
Another aspect of Trump’s battle with the Fed is his feud over interest rates with its leader, Chairman Jerome Powell. Powell was appointed by Trump but unlike many of our President’s appointees in other government institutions, Powell hasn’t jumped at the chance to comply with his president. Recently, Trump called upon the Fed to cut interest rates, claiming that doing so would allow the economy to “take off” as he put it.
Adjusting interest rates remains within the power of the Federal Reserve , an institution that was created to operate without influence from the U.S.’ political system. President Trump has made it clear that he blames the Fed for hindering economic growth within both the U.S. and ultimately the global economy. If Trump’s history in the White House has taught us anything, though, it is that he is all too quick to blame just about anyone else for problems that can also be traced back to his own policies.
Despite Trump’s constant criticisms, Powell has insisted that the Fed is setting its monetary policy without any type of political influence and he has no intentions of resigning. While that may be true, we are still facing the prospect of our nation’s central bank being controlled, even in part, by figures who have strong ties to one political party. While neither Cain nor Moore are economists or bankers by trade, they are both talking heads for the GOP and supporters of Trump’s economic policies. Moore first made headlines in September 2018 when he published an article titled Give Trump the Nobel Prize for Economics. It certainly isn’t hard to see why Trump would want to put the man who believes so strongly in his economic policies in such a position of power when it comes to financial system regulation.
To do their jobs properly, the Fed’s board of governors need to be able to remain completely apolitical in their decisions. Can someone like Moore be expected to do that? He currently serves as the Distinguished Visiting Fellow, Project for Economic Growth, at The Heritage Foundation, an institution constantly hailed as one of the nation’s most influential conservative think tanks.
Trump’s selection of Herman Cain seems questionable for similar reasons. The former pizza chain executive ran for President in 2012 on the Republican Party ticket but he’s almost as well known for his attacks on the IRS, going so far as to call the American tax code the “modern version of slavery.” In Cain’s proposed “9-9-9” tax plan, the majority of our tax code would have been replaced with a 9% income and corporation flat tax. Both he and Moore have clearly demonstrated that they strongly favor the economic policies of the conservative parties and have never demonstrated the nonpartisan approach necessary for making regulatory decisions. Their appointment could easily serve to undermine Powell and help further President Trump’s economic policy agenda.
All this also serves to undermine the credibility of the Fed, a concept that could have further negative consequences for both the U.S. and global economies were it to intensify. Trump is not the first president to comment on interest rates and policies set by the Fed but he has made his bias more explicitly known than anyone before him. Many presidents have been hesitant to say too much regarding monetary policy as it can sometimes come across as trying to influence those who set it. Trump, however, has made no secret that he wants to influence monetary policy and he seems intent on doing what is necessary to remove obstacles that stand in his way. If Moore and Cain are allowed to take seats on the Fed’s board of governors, it will pose a serious threat to the system of nonpartisan decision making that gives the Federal Reserve its credibility. If it loses that, the Fed will not be able to properly regulate our financial system.
Better Markets is a nonpartisan research organization that works to promote the reform of Wall Street and the support the public’s interest in financial markets.
Americans for Financial Reform is a nonpartisan and nonprofit coalition of more than 200 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups.
The Committee for Better Banks is a coalition of bank workers, community and consumer advocacy groups, and labor organizations coming together to improve conditions in the bank industry.
Photo by Sharon McCutcheon