Michael Bloomberg: The White House attack on Fed independence is a dangerous instance of overreach

3 hours ago 1

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The case for central bank independence shouldn’t need restating. (REUTERS)

Summary

The White House’s latest escalation of pressure on the US Federal Reserve marks a new threat to the central bank’s independence. The Trump administration’s myopic focus on short-term policy rates could come at a huge cost—by going against its own goal of cheaper credit over time.

The White House’s latest escalation of pressure on the Federal Reserve is a new and dangerous overreach. For the country’s sake—and, by the way, to avoid the collapse in popular support that would likely follow a severe financial-market backlash—the administration needs to think again.

Up to now, Fed Chair Jerome Powell hasn’t responded to White House efforts to sway the central bank’s decisions. But after the Justice Department served subpoenas threatening a criminal prosecution, Powell cast aside dignified silence and issued a video statement: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."

The investigation concerns Powell’s testimony to Congress last year about the Fed’s renovation of its headquarters—a project that, like most others of its kind, has cost a lot more and is taking longer to complete than first estimated.

From the outset, analysts saw the probe as a way to press the Fed to cut interest rates faster or make Powell step aside as chair so that the White House could appoint his successor ahead of schedule. The new prospect of criminal prosecution is unprecedented and vastly raises the stakes. Instead of folding, Powell is rightly digging in his heels.

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The White House is understandably preoccupied with “affordability," and trying to show it will do anything and everything to get households’ costs under control. But a frontal assault on Fed independence serves to undermine that agenda.

When the administration interferes with monetary policy, it’s harder for the central bank to deliver what the White House wants: a lower cost of finance. This is a formula for financial panic and economic disaster. The president needs to change course. He should blame overzealous officials for this latest development, declare a ceasefire and say he has no intention of running monetary policy out of the White House.

The administration should then commit to letting Powell and his colleagues do their jobs. Persisting with this campaign of intimidation is a decision everyone involved will come to regret. ©Bloomberg

The author is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

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