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Pat Garofalo Trump's criticism of the Fed shattered a potent political norm. The norm deserved it.

A broken clock is right twice a day, and the president was accurate in his assessment of the Fed.
Image: Donald Trump
President Donald Trump participates in the U.S. Coast Guard Change-of-Command Ceremony at the U.S. Coast Guard Headquarters in Washington on June 1, 2018.Olivier Douliery / Pool via Getty Images
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Donald Trump doesn’t much care for norms — political or otherwise — as his entire political career has made abundantly clear. Oftentimes, that penchant for norm destruction is bad for American democracy and policy.

However, sometimes he upends a norm that should actually be rethought. One such instance occurred Thursday when, in an interview that aired Friday on CNBC, the president directly criticized the Federal Reserve, saying, “I’m not thrilled” with the Fed’s recent decisions to increase interest rates. “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” he said. The bank has planned for two more rate hikes in 2018, followed by three in 2019.

He added that his chosen Federal Reserve Board Chairman Jerome Powell is “a good man,” and that, “at the same time, I’m letting them do what they feel is best.” However, it’s obvious that his preferred path is for the central bank to give the rate hikes a rest — and he’s probably right, both in terms of the policy and the end of the norm of presidents refusing to criticize the Fed.

First, a little background: The Federal Reserve oversees monetary policy, primarily through its setting of interest rates in an effort to balance full employment (generally thought to be an unemployment rate of around two to four percent) with a stable dollar (i.e., low inflation). Lower interest rates are meant to boost the economy and create more jobs, while higher rates are meant to nip inflation in the bud.

Crucially, those decisions regarding when and by how much to raise rates are supposed to be made without political interference. The last president to so explicitly call for specific Fed actions was Richard Nixon (who at least did his haranguing of Fed Chair Arthur Burns in private). That episode led to ruinously high inflation and a today’s mantra that the Fed should be left alone.

And, there’s a certain seductive quality to the notion that the central bank should be politically independent: The thinking goes that elected officials will always want the Fed to lower rates because doing so will juice the economy, which makes voters happy, and no one will want to raise rates and thus risk an economic slowdown and the commensurate electoral bloodbath. Eventually, that thinking goes, politicians will push the Fed so much that inflation will run amok.

Thus, Trump’s remarks drew a rebuke within political and economic policymaking circles; headlines noted that Trump was “breaking long-standing practice.”

But trusting the Fed to do its job in technocratic peace assumes that it always does the correct thing and never needs to answer for mistakes. That is simply not the case.

There’s a good argument to be made that the Fed’s recent rate decisions are misguided, and that it should let the economy run along at its current pace for a while longer. Job and GDP growth, while fine over the last several quarters, are not going gangbusters, and the share of workers who have a job is nothing to write home about either. Wage growth, meanwhile, has been nonexistent for years; in the second quarter of 2018, wages actually went down, according to one measure.

Raising rates does nothing to help those trends; in fact, it’s explicitly meant to do the opposite, slowing down the economy, blunting growth and keeping more people out of the workforce than would be in it were the Fed to keep interest rates at current levels. And inflation in the U.S. is currently right on the Fed’s target; Powell said as much in congressional testimony this week.

So the planned rate hikes that the Fed has in mind for this year, according to the data, could probably afford to wait until there’s more of a consensus that the U.S. is really at full employment. Letting the economy run a bit hot would be better for the sorts of people politicians always claim to be working for — those left-behind folks who can’t catch a break and whose pay has gone nowhere for decades. Trump is correctly making the connection between monetary policy and their welfare.

Now, there’s a certain hypocrisy at work with Trump’s criticism of the Fed, since during the 2016 campaign he bashed the central bank for keeping rates too low, which he claimed then-Federal Reserve Chair Janet Yellen was doing to help then-President Barack Obama and Democratic presidential candidate Hillary Clinton. At the time, the case for low rates was even better than it is currently. But subtlety in his flip-flops has never been Trump’s strong suit.

More importantly, the idea that the Fed should never face accountability for its actions is just wrong. The Federal Reserve governors are not infallible; they’re human, have biases and make mistakes like anyone else. The central bank famously botched its duties in the run-up to the 2008 financial crisis, for instance.

However, voters can’t oust the Fed board — so politicians criticizing the central bank when it’s messing up is the only real way to place a check on its activities.

It’s entirely possible that Trump and other Fed critics are wrong, and that the path Powell and his board are on is the right one; but it’s also possible that the central bank is bungling things, which would have the real world result of keeping people out of the workforce for no good reason. Officials who directly answer to voters — Trump included — should be able to say so.

Pat Garofalo is a writer and editor based in Washington, D.C. He was formerly an editor at U.S. News & World Report and ThinkProgress. His book, "The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs" will be published in March 2019.

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