WASHINGTON – JD Vance has endorsed former President Donald Trump’s call for the White House to have “a say” in the Federal Reserve’s interest rate policies – a view that goes against decades of economicto look for suggesting that politically independent central banks are essential to controlling inflation and maintaining confidence in the global financial system.
“President Trump is saying something that is really important and profound, which is that the political leadership of this country should have more say over the monetary policy of this country,” the Republican vice presidential nominee said in a weekend interview. “I agree with him.”
Last week, during a press conference, Trump responded to a question about the Fed by saying, “I feel like the president should have at least a say, yes, I feel that strongly.”
Economists have long stressed that a Fed that is legally independent of elected officials is vital because politicians would almost always prefer the central bank to keep interest rates low to stimulate the economy — even at the risk of inflaming inflation.
“The independence of the Fed is something that not just economists or investors but also citizens should place a high value on,” said Carl Tannenbaum, chief economist at Northern Trust, a wealth management firm.
Tannenbaum highlighted the recent experience from Türkiyewhere autocratic President Recep Tayyip Erdogan forced the country’s central bank to cut rates in response to inflation, with “horrible results”. Inflation soared above 65% before Erdogan appointed different leaders to the central bank, who have since raised its key rate to 50% – almost ten times the Fed’s current rate of 5.3%.
By adjusting its short-term interest rate, the Fed influences borrowing costs for consumers and businesses, including mortgages, auto loans and credit card loans. It can increase its rate, as it did in 2022 and 2023, to cool spending and reduce inflation. The Fed also frequently cuts its rate to encourage borrowing, spending and growth. At the beginning of the pandemic, it reduced its rate to almost zero.
On Saturday, Vice President Kamala Harris said she could not “disagree more strongly” with Trump’s views.
“The Fed is an independent entity, and as president, I would never interfere in the decisions the Fed makes,” she said.
President Richard Nixon Pressure on Fed Chairman Arthur Burns The attempt to keep rates low before the 1972 presidential election was widely blamed for the acceleration of runaway inflation that was only fully controlled in the early 1980s under Fed Chairman Paul Volcker.
Tannenbaum warned of potentially serious consequences if the Trump-Vance proposal for the White House to have some role in Fed policymaking goes into effect
“If the proposed legislation goes through… that’s when I think we would start to see the market reaction, which would be very negative,” he said. “If we ignore the history surrounding monetary policy independence, we may be doomed to repeat it.”
This story originally appeared on ABCNews.go.com read the full story
