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U.S. under Trump Series: Is Federal Reserve losing independence in Trump era?
The International Monetary Fund (IMF) not so veiled warning to Trump administration against attacking central bank’s independence. Speaking in an interview, Tobias Adrian, director of IMF’s monetary and capital markets department warned of serious consequences if the central bank’s independence is undermined. He called on central bank members to take independent actions and to not to heed calls from politicians.
Mr. Tobius was possibly refereeing to President Trump’s frequent attack on the Fed via his Twitter account as the view of the President and the Fed was at divergence since the beginning of his Presidency. Since his coming to Office, the central has hiked rates seven times by 25 basis points each. The President was vehemently against it as a hike in interest rates usually considered to have a cooling effect on the economy.
Now that the U.S. economy has slowed down, President is openly criticizing the Fed.
So, is he really undermining the central bank’s independence?
While no one can blame him of taking any actions that undermine the Fed or crossing legal boundaries when it comes to his authority over the central bank, he might still be undermining the central bank at least to some extent with his verbal attacks.
When blaming the President against his views, one should consider his first amendment rights under the constitution, but rallying a crowd of people against actions of the central bank which may not be seen as a favorable one for the economy sets a dangerous precedent for the coming generation and Presidency.
Could it be more than just verbal attacks?
There is another way within the legal boundaries where president Trump can be effective in influencing the decision at the Federal Reserve, and that is through the new appointees.
His administration didn’t grant then Fed Chair Janet Yellen, a second term and instead recommended her colleague Jerome Powell to the post but it turned out that Mr. Powell is not what the President was looking for. The president was immediately critical of his own appointee.
So, the administration is more determined not to repeat the ‘Powell’ mistake again.
President Trump is nominating people at the Federal Reserve Board seats who align with his viewpoints. At one post, he has nominated Stephen Moore, the Author of Trumponomics, and an admirer of the President. While his first nominee was non-political, his second pick certainly raised eyebrows at Fed and in Washington. Last week, the President nominated Herman Cain, former presidential candidate and Trump super PAC head for a vacant post at governor’s seat.
It is within the legal boundaries but adding deeply involved political people at Federal Reserve sets a dangerous precedent for the future, where the central bank might lose some of its decision making independence as politicians crowd out the economists.