Economic Concerns Over Trump’s Possible Interference with the Federal Reserve
A top economic adviser to President Joe Biden has expressed concerns that Donald Trump’s incoming administration risks reigniting inflation if it interferes with the Federal Reserve’s policymaking on interest rates.
Jared Bernstein, the chairman of the Council of Economic Advisers, said he is keeping an open mind about the president-elect’s team but alluded to Trump’s past musings that the executive branch should have greater say over the central bank’s rate-setting.
Bernstein’s Warning: Messing with Fed Independence Can Lead to Inflation
“Let’s see what they do. They don’t want higher inflation or interest rates,” Bernstein told Bloomberg Television’s Balance of Power on Thursday. “But once you start messing around with Fed independence, I think you’re making a pretty fatal mistake in terms of controlling inflation.”
Trump’s Treasury Secretary Nominee Pushes Back on Concerns Over Interference
Bernstein’s comments came the same day that Trump’s pick for Treasury Secretary, Scott Bessent, testified at a confirmation hearing. Bessent pushed back on concerns from senators that Trump might seek to interfere with the Fed’s independence, saying that the incoming president would share his views on the bank just as congressional lawmakers do.
“I think on monetary policy decisions, the FOMC should be independent,” Bessent said, referring to the Federal Open Market Committee, the bank’s interest-rate setting arm.
Why Fed Independence Matters: Historical Precedents and Potential Risks
Presidents of both parties have largely refrained from commenting on Fed decisions and interest rates to avoid the perceptions of influencing the central bank. Biden avoided commenting on the Fed even as Democrats grew frustrated over the bank’s pace of rate cuts.
Bernstein said the administration was “acutely aware that economies have been brought to their knees by compromising the independence of the central bank and that’s largely because of unforced errors on inflation.”
Anger over high prices and persistent inflation helped propel Trump to the White House in November’s election, but as he prepares to take office inflation is moderating and the Fed is grappling with the pace of rate cuts.
Potential Flashpoints for Trump’s Second Term: Economy, Inflation, and Taxes
The pace of cuts, the inflation rate, yields and the deficit are all potential flashpoints in Trump’s second term, when Republicans will aim to extend his tax cuts.
Bernstein said he would not presume to predict what Trump would do but said policies such as sweeping tariffs, wide-ranging tax cuts for the wealthy and mass deportations of undocumented workers could fuel price growth.
“All of those, of course, are inflationary. And then if you add in compromising Fed independence, you’ve got a real problem on your hands,” he said. “I don’t think they want to go there.”
Bernstein joked that he’ll soon be free from the administration’s reluctance to comment on the bank.
“People ask me right now: what are you going to do after this job?” Bernstein said. “One of the things I say is: I’m going to talk about the Fed.”
