President Donald Trump lashed out against Jerome Powell and the Federal Reserve on Thursday, arguing that American economic strength should result in the U.S. having the lowest interest rates in the world.
“We should have lower interest rates than Germany, Japan and all others,” Trump tweeted. “We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage.”
“China is not our problem, the Federal Reserve is!” Trump added. “We will win anyway.”
….our manufacturers. We should have lower interest rates than Germany, Japan and all others. We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is! We will win anyway.
— Donald J. Trump (@realDonaldTrump) October 31, 2019
President Trump has been sharply critical of the stance of monetary policy and Fed chair Powell, who Trump appointed last year. At the heart of Trump’s beef with the Fed is a disagreement about how fast the American economy should be growing. The Fed sees growth just below two percent as healthy and growth above that level as the U.S. economy growing “above potential,” a situation that Fed officials fear could cause unwanted levels of inflation. The president thinks the economy can grow much faster.
The president is also much more focused on the effects monetary policy can have on the competitiveness of U.S. businesses than the Federal Reserve. Although managing the dollar’s foreign exchange value was a major part of the Fed’s operations until the mid-1960s, this is no longer the case as the Fed has adopted a view that puts the supposed trade-off between unemployment and inflation at the center of its mission. In the late 1970s, Congress made this official by passing legislation directing the Fed to aim for maximum employment and stable prices.
This summer Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.) introduced legislation that would direct the Fed to balance the nation’s trade balance by charging a “market access charge” on foreign purchases of U.S. assets. This tax would reduce the demand for dollars, lowering the dollar’s value against foreign currencies. Effectively, managing the dollar and capital flows would become a third mandate for the Fed.
Absent new legislation, it is unlikely the Fed will adopt currency management policies. Fed chief Powell has repeatedly said that the dollars foreign exchange value is not a central bank concern.