Trump Uses the Wrong Tool to Influence the Fed
(Bloomberg Opinion) -- Nineteen months into his term, President Donald Trump demonstrated again that he doesn’t understand his job.
In an interview with Reuters on Monday, he reiterated his criticism of the Federal Reserve’s interest-rate increases. His comments break with a fairly recently established norm of presidents refraining from infringing on the central bank’s independence. But if Trump is trying to influence the Fed, he is neglecting the best tool a president has: the power to pick members of the Board of Governors.
Presidents can’t force the Fed chair, or anyone on the board, to listen to what he’s saying, let alone act on it. The central bank is independent by design, and in the long run it’s as likely to respond to Congress as to anyone else.
However, presidents can nominate like-minded candidates to the Board of Governors. And Trump has had extraordinary opportunities to do so. Of the seven positions, only one Barack Obama holdover remains, Lael Brainard. The other six spots, including the chair, have all been vacant at some point during Trump’s presidency. He could fill the slots with people who share his views on economics; that would be the best way to get the policies he wants.
Instead, the Fed is now functioning with four open seats. Only two of Trump’s selections have been confirmed. One of those, Chair Jerome Powell, is the target of Trump’s criticism. Powell was an Obama nomination to the board, and Trump elevated him to the top job instead of renominating former Chair Janet Yellen.
The president also nominated new people for three of the four vacant seats. Unlike with judges, however, Trump has acted fairly slowly, and has put no public pressure on the Senate to confirm his selections speedily. All three are waiting for a final Senate confirmation vote. Michelle Bowman’s nomination was announced in April, six months after the seat became vacant; Richard Clarida, also announced in April, is intended to fill the vice chair slot, which had been vacant for a full year. The third pick, Martin Goodfriend, was to fill a seat that’s been open for years. He cleared the Senate Banking Committee in February, but his nomination has languished because he doesn’t appear to have the votes for confirmation by the full Senate. Trump doesn’t seem to have done anything to fight for his nominee, but hasn’t withdrawn him.
And he hasn’t nominated anyone for the fourth Fed vacancy.
What’s more, the people Trump nominated might not align with him on policy and could support the tighter monetary policy he opposes.
One explanation is that he doesn’t realize that the power of appointment is extremely valuable, and that he can use it to affect policy and increase his influence. Instead, he mistakenly thinks that the president’s real source of power is in his mouth (and his Twitter feed). So he squanders chances for real influence, and chooses instead to make himself look impotent by whining about not getting his way.
Or, perhaps, he doesn’t care about monetary policy, and he’s just (as some have suggested) setting up scapegoats in case a recession strikes. That would be a huge mistake. Presidents cannot deflect responsibility for hard economic times. If there’s a recession, Trump will bear the blame and take a hit to his approval ratings, just as every modern president has when the economy slowed. It’s not unusual for a White House to overestimate the potential effects of presidential spin, but to assume that will protect a president is foolish.
In short: If Trump doesn’t like the direction the Fed is taking, he should stop whining and try to do something about it. That he doesn’t suggests he still has no idea what he’s doing.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Jonathan Bernstein is a Bloomberg Opinion columnist covering politics and policy. He taught political science at the University of Texas at San Antonio and DePauw University and wrote A Plain Blog About Politics.
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