WASHINGTON — JD Vance has approved former President Donald Trump’s call for the White House to have a “say” on the Federal Reserve’s interest rate policy — a view that runs counter to decades by economicresearch suggesting that politically independent central banks are essential for controlling inflation and maintaining confidence in the global financial system.
“President Trump is saying that I think something is very important and actually profound, and that is that the political leaders of this country should have more say in the monetary policy of this country,” the Republican vice presidential nominee said in an interview over the weekend. “I agree with him.”
Last week, Trump responded to a question about the Fed at a press conference by saying, “I think the president should at least have something to say about that, yes, I strongly believe that.”
Economists have long stressed that a Fed that is legally independent of elected officials is vital because politicians almost always prefer that the central bank keep interest rates low to stimulate the economy — even if that risks increasing inflation.
“The independence of the Fed is something that not just economists or investors, but citizens should value highly,” said Carl Tannenbaum, chief economist at Northern Trust, an asset manager.
Tannenbaum pointed to recent experience from Turkeywhere autocratic President Recep Tayyip Erdogan forced the country’s central bank to cut interest rates in response to inflation, with “terrible results.” Inflation soared above 65% before Erdogan appointed several leaders to the central bank, who have since raised the key interest rate to 50% — nearly ten times the Fed’s current rate of 5.3%.
By adjusting short-term interest rates, the Fed affects the cost of borrowing for consumers and businesses, including mortgages, auto loans and credit card loans. The Fed can raise rates, as it did in 2022 and 2023, to cool spending and curb inflation. The Fed also frequently cuts rates to stimulate borrowing, spending and growth. Early in the pandemic, the Fed cut rates to near zero.
On Saturday, Vice President Kamala Harris said she could “strongly disagree” with Trump’s position.
“The Fed is an independent entity and as president I would never interfere with the decisions the Fed makes,” she said.
Richard Nixon’s President pressure on Fed Chairman Arthur Burns The intention to keep interest rates low in the run-up to the 1972 presidential election is widely seen as the cause of the explosive inflation, which was not fully brought under control until the early 1980s under Fed Chairman Paul Volcker.
Tannenbaum warned of potentially dire consequences if Trump and Vance’s proposal to give the White House a role in Fed policymaking were to become law.
“If it goes through in the proposed legislation … then I think you’ll see the market reaction which would be very negative,” he said. “If we ignore the history around monetary policy independence, then we may be doomed to repeat it.”