Trump's criticisms of the Fed may actually cause the central bank to 'reassert itself': Studzinski

Key Points
  • Pimco's John Studzinski argues that Fed Chairman Jerome Powell won't bow down to pressure from the president to halt interest rate rises.
  • He said Trump's comments about the Fed may "work to the other effect," leading the central bank to "reassert itself and be even more independent."
  • Trump has labeled the Fed "crazy" due to its interest rate hiking path, and reportedly even discussed the prospect of firing the institution's chief.

President Donald Trump's vocal displeasure with the Federal Reserve may in fact create an opposite effect — a reassertion of its independence and policy tightening path.

That's according to veteran investment banker and philanthropist John Studzinski, who argues that Fed Chairman Jerome Powell won't bow down to pressure from the president to halt interest rate rises.

"He's not going to blink and he's going to keep his own advice with respect to what he does with his rate rises over the next 12 months," Studzinski, managing director and vice chairman of Pimco, told CNBC's Steve Sedgwick and Geoff Cutmore.

The Pimco executive made the comments during an interview a week prior to the Fed's decision on Dec. 19 to hike rates for the fourth time this year.

"To a certain extent," he continued, "any comment that Mr Trump makes about this may work to the other effect, which is he might cause the Fed to reassert itself and be even more independent."

The Fed considers itself to be "independent within the government," meaning it is subject to scrutiny from Congress but sets monetary policy independently of political pressures.

VIDEO4:0804:08
The Fed has to readjust what it thinks a neutral rate is, says Greg Ip

The U.S. central bank's independence has increasingly returned to the spotlight amid criticisms from Trump. The president has in recent months labeled the Fed "crazy" due to its interest rate hiking path, and reportedly even discussed the prospect of firing the institution's chief.

Treasury Secretary Steven Mnuchin later downplayed those reports, however, tweeting that Trump said he "never suggested firing" Powell, despite his disagreements with the Fed's policy tightening.

'Reality TV politics'

Studzinski summarized the Fed's culture as being about employing the "best people" and the "best discipline," adding: "These are not people who bend to certain short-term political thinking."

He suggested the "reality TV politics" seen in the U.S. under Trump's presidency had led to increased political scrutiny of the Fed system, increasing the possibility of the Fed being used as an effective "scapegoat" if economic growth slows.

"The sense of checks and balances on independent Federal Reserve banks is always now in this environment going to be called into question, and is going to be potentially a scapegoat for any downturn in the economy," Studzinski said.