When Donald Trump attacked Federal Reserve Chairman Jerome Powell during his first term, I thought the attacks were crazily overheated — he suggested Powell was a greater enemy of the country than Chairman Xi — but that Trump sometimes had a legitimate point. The current wave of attacks are also overheated, but this time they don’t have much merit.
In the Washington Post today, I examine the principal arguments that Trump and his allies are making against Powell.
Here I’ll make an additional point. Some Republicans are saying that Powell has a partisan bias against Republicans or a personal one against Trump: They say Powell cut interest rates in 2024 to help Biden and Harris but won’t cut them to help Trump now. I explain why I don’t think the timeline holds up. But I also think that accusations of bias would be easier to beat back if the Fed tied monetary policy more strictly to a rule.
Let’s say the Fed established a policy similar to the one that the Institute of Economic Affairs recently proposed for Britain: It would tighten money whenever futures markets indicated spending is growing faster than, say, 5 percent annually, and loosen in the opposite circumstance. Then there would be no need to wonder whether its decisions were being affected by whoever is president: You could just look at the market and look at the rule, and you’d know what the Fed was going to do and why it was going to do it.