Federal Reserve

Trump's Fed criticism is nearly without precedent in US history

Key Points
  • President Donald Trump's criticism of the Federal Reserve has little precedence in history.
  • Only Richard Nixon ever sought to overtly influence the direction of monetary policy while in office.
  • Past Fed officials are divided on the impact of Trump's remarks.
  • The White House issued a statement in response to the president's comments to CNBC, saying he respects the Fed's independence.

President Donald Trump's move to criticize the Federal Reserve is almost without precedent in a nation that places a high priority on the independence of monetary policy.

Almost all of Trump's predecessors steered clear of Fed critiques in the interest of making sure that interest rates were set to whatever was best for the economy and not to boost anyone's political fortunes.

The Trump administration, of course, has been anything but typical, and the Trump comments, if anything, were consistent with a president who cares little for convention and is willing to speak his mind on virtually anything.

“Somebody would say, ‘Oh, maybe you shouldn’t say that as president,'" Trump said in an interview with CNBC. "I couldn’t care less what they say, because my views haven’t changed.”

The closest analog with Trump's apparent efforts to influence interest rates — he prefers the Fed keep them low — was how former President Richard Nixon arm-twisted Arthur Burns to maintain loose monetary policy as Nixon sought re-election in 1972.

"I don’t want to go out of town fast,” Nixon told Burns in one conversation, according to tapes of conversations between the two. Concerns about too much liquidity in the economy were "just bulls---," the president added.

That didn't work out particularly well: As the 1970s economy continued to grow, inflation took root thanks to low rates and remained stubbornly in place until the early 1980s, when then-Fed Chair Paul Volcker had to tighten policy sharply. That in turn pushed the economy into recession but also helped slay the inflation problem and paved the way for the most powerful growth the economy had seen in the post-World War II era.

President Donald Trump (R) introduces his nominee for the chairman of the Federal Reserve Jerome Powell during a press event in the Rose Garden at the White House, November 2, 2017 in Washington, DC.
Drew Angerer | Getty Images

There are few other examples.

George H.W. Bush lamented that Alan Greenspan's reluctance to cut rates more aggressively in the early 1990s helped push the economy into a recession that paved the way for Bill Clinton's election. But his criticisms came in 1998 — six years after Bush left office.

Ronald Reagan also reportedly complained about monetary policy. The New York Times reported in 1982 that Reagan considered Volcker's strategy "erratic," though he ultimately was hailed as a hero.

It all makes Trump's comments all the more striking.

He told CNBC that he was "not thrilled" about the rate hikes, enacted by a Fed whose chairman, Jerome Powell, was a Trump appointee. The Fed has approved two hikes this year and is expected to hike twice more before 2018 ends and perhaps another three times in 2019, according to current projections.

Trump worries that the hikes will derail economic progress "because we go up and every time you go up they want to raise rates again. I am not happy about it. But at the same time I’m letting them do what they feel is best.”

Later in the afternoon, after CNBC aired an excerpt of an interview that will be run Friday at 6 am, the White House said the president did not mean to impugn Fed independence.

"Of course the President respects the independence of the Fed," the statement said.

Indeed, Powell in a recent interview said that he has felt no political pressure from the White House. CNBC's Steve Liesman reported Thursday afternoon that Powell and Trump have not met since Powell took the chairman's position in February.

"We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and we don't ... take political considerations into account," Powell said in a recent interview with Marketplace. "I would add though that no one in the administration has said anything to me that really gives me concern on this front."

Some former Fed officials, though, said they were concerned about the president's comments.

Former Fed Governor Frederic Mishkin told CNBC the criticism is "not particularly welcome" and potentially a "danger sign." Former Dallas Fed President Richard Fisher added that "no president should interfere with the workings of the Fed."

But another former governor, Larry Lindsey, said he does not believe the president's remarks will impact policy.

"As an attack on the independence of the Fed, this just wasn't one, especially Trump-adjusted," Lindsey said. "No, I do not think this is going to have any effect, and I don't think this is an attack on the independence of the Fed."

Correction: An earlier version of this story misstated the year when Reagan was elected and when he commented on the Fed.

— CNBC's Liz Moyer contributed to this report.