Trump’s mudslinging puts Fed in danger

Posted on October 4, 2016

Republican presidential nominee Donald Trump listens to a question as he appears at the "Retired American Warriors" conference during a campaign stop in Herndon, Virginia, U.S., October 3, 2016. REUTERS/Mike Segar©Reuters

Donald Trump. It is beyond hope that he will moderate his attacks

So many extraordinary accusations and denunciations emanate from Donald Trump, the Republican candidate for US president, that it is hard to keep track. One of the more potentially damaging is the contention that the Federal Reserve is setting policy to ensure the election of his opponent, Hillary Clinton.

Political criticism of the US central bank has been going on for decades. The Fed has been roundly attacked, particularly by Republicans, for quantitative easing and other attempts to ease monetary policy after the global financial crisis.

    Yet it is offensive and absurd to suggest that Janet Yellen, the Fed chair, and her colleagues are deliberately trying to engineer the election of another Democratic president. At a time when the Fed has a low standing in the public mind, perhaps more disturbing than Mr Trump’s eccentric claims is that congressional Republicans, who should know better, are joining in.

    That the Fed is a politicised institution — more so than most other central banks — is not a contentious observation. Compared with international counterparts, there is a high degree of declared political affiliation among Fed governors and a tendency for presidents to appoint one of their own as Fed chair. Nor is it unusual for Fed officials also to have served in the executive branch: Alan Greenspan, Fed chairman from 1987-2006, had been chairman of the White House economic advisers council in Gerald Ford’s administration. Ben Bernanke, his successor, did the same job under George W Bush.

    But that does not translate into setting monetary policy in a politically partisan way, as evinced by the persistent attacks on Mr Bernanke’s Fed chairmanship by congressional Republicans. Mr Bernanke’s actions were informed by his own and others’ outstanding academic work, including on the experience of the Fed in the Great Depression, not by following some fictional playbook on setting monetary policy in a Republican fashion. Having been installed by George W Bush, Mr Bernanke was reappointed without controversy by Barack Obama.

    Moreover, his policies have been continued more or less seamlessly by Ms Yellen, the Democrat who took over from Mr Bernanke. For lawmakers to criticise the Fed’s approach is one thing: as long as they do not seek to impinge on its independence, that is entirely legitimate. To fling around accusations of political bias, however, is something else altogether.

    Last week Scott Garrett, a Republican congressman, took the opportunity of an appearance by Ms Yellen in Congress to criticise Lael Brainard, appointed a Fed governor in 2014, who donated money to Mrs Clinton’s campaign. Mr Garrett repeated media claims, without evidence and despite denials, that Ms Brainard had been negotiating with Mrs Clinton’s staff about a job in a future administration.

    This sort of mindless mud-slinging does nothing to advance the debate about monetary policy and is particularly dangerous at the current time. Public approval of the Fed dropped sharply after the recession — understandably, given its failure to foresee it. It has been weak since — much less fairly, given the Fed’s Herculean efforts to stave off depression. Worryingly, there has also been a widening partisan split, with Republicans more likely than Democrats to hold a negative view of the central bank.

    It is beyond hope that Mr Trump will see sense and moderate his attacks. His fellow Republicans, unless they are ready to endanger one of the pillars of US economic stability, should resist the urge to follow his example.

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