The president's recent criticism of the Fed could lead it to take more aggressive action on interest rates to prove its independence
President Donald Trump’s attacks on the Federal Reserve could backfire and result in even more aggressive rate hikes, according to a former Fed official.
Trump has recently been vocal in his displeasure with the pace of the Fed’s interest rate hikes. Earlier this month, Trump said he thought the Fed was “making a mistake” by raising interest rates.
“I think the Fed has gone crazy,” he said. Trump also said that rising rates were the “biggest threat” to economic expansion during his administration.
But former Fed vice chairman Stanley Fischer told CNBC Thursday that the central bank might be tempted to raise rates more aggressively to show that it is politically independent.
“I don’t think it helps at all, even if he thinks that,” Fischer said. “The Fed is going to try to demonstrate that it’s totally independent and it’s not going to react to that. Then the question is, ‘What do they do to show they’re not reacting?’ They could go either way. They could probably raise rates faster, which is not what he is exactly looking for.”
Fischer said that ultimately, the Fed will likely do what it thinks is best for the economy without regard to political appearances.
“I believe this is a highly professional board,” he told CNBC. “The Fed’s board was chosen very well by the administration, and it’s a good group of people and they will do what they have to do. They have to make a professional judgment, and that should be what the interest rate should be, and it should be totally independent of political pressure.”
The Fed has been gradually increasing rates since 2015. The most recent increase was in September.
