By keeping interest rates low, the Fed has created a "false stock market," Donald Trump argued in a wide-ranging CNBC interview, exclaiming that Fed Chair Janet Yellen and central bank policymakers are very political, and should be "ashamed" of what they're doing to the country, "The Fed is not even close to being independent."
Trump said rates are being kept lower to bolster Obama's legacy…
"Any increase at all will be a very, very small increase because they want to keep the market up so Obama goes out and let the new guy … raise interest rates … and watch what happens in the stock market."
Doubting whether rates would change while Obama remains in office, Trump said: "[Obama] wants to go out. He wants to play golf for the rest of this life. And he doesn't care what's going to happen after January."
"These crazy, low interest rates, they're not always going to be this way…"
In response to Trump's charges about politics influencing the central bank, CNBC reports, Minneapolis Fed President Neel Kashkari told CNBC in a separate interview on Monday there's no truth to that notion.
And before you dismiss Trump's commentary as ignorance, like Mark Cuban just did…
Dear Donald, if the @federalreserve is truly political they will announce that if you are elected there will be a HUGE rate increase.
— Mark Cuban (@mcuban) September 12, 2016
Perhaps a glance at the following chart is worthwhile…
Oh and then there is this…
Even The New York Times admits that Trump is right… but suggests the politically-correct (and economically most effective) policy has been not to admit it publically…
1. Trump is correct that the Fed is not independent. It's an arm of government. It is insulated from politics, but far from impervious.
2. Moreover, the framework of a nation's monetary policy, like all policy, is appropriately and necessarily a subject for political debate.
3. But history teaches clearly that central banks achieve the best results, economically speaking, when left to their technocratic devices.
4. Since the Carter administration, presidents (and candidates) have generally avoided the kind of critique Trump is now making repeatedly.
5. It came to be accepted that any short-term political benefits of attacking the Fed were outweighed by the long-term economic costs.
6. It would be interesting to hear Trump explain why he disagrees.
Still don't believe The Fed is politically-dependent? We recalled this particularly colorful anecdote demonstrating just how "independent" said Fed chairs are in "a confidential setting."
From the NYT:
… in 1965, President Lyndon B. Johnson, who wanted cheap credit to finance the Vietnam War and his Great Society, summoned Fed chairman William McChesney Martin to his Texas ranch.
There, after asking other officials to leave the room, Johnson reportedly shoved Martin against the wall as he demanding that the Fed once again hold down interest rates. Martin caved, the Fed printed money, and inflation kept climbing until the early 1980s.
“I hope you have examined your conscience and you’re convinced you’re on the right track.” Lady Bird Johnson said to William McChesney Martin, on his arrival at the LBJ ranch.
We hope this time it's different.