Should The Fed Be Above Criticism?

I suppose it was just a matter of time, but Trump Derangement Syndrome (TDS) finally hit the bond market last week.

According to some experts, last week’s nearly 10 basis point jump in long-term Treasury bond yields was at least partially due to the president’s unprecedented and impertinent statement that he didn’t like the fact that the Federal Reserve was raising interest rates.

For the past two years, the financial markets have been an island of blissful ignorance, totally disregarding all of the nonsense swirling around the White House, whether real or invented. The S&P 500 has risen about 30% since Donald Trump’s election despite all of the clouds hanging over his presidency, from alleged collusion with the Russians to the Paul Manafort thing to Stormy Daniels to surrendering American sovereignty to Vladimir Putin.

But now apparently the president has finally stepped in it deep enough to rattle the markets.

Last week the yield on the benchmark 10-year Treasury note rose seven basis points to close the week just below 2.90%, its highest weekly close in a month. The yield on the 30-year bond jumped 10 bps to 3.03%, its highest level since June 26. According to the Wall Street Journal, some of that rise was due to Trump’s comments about Fed policy, neglecting to mention that the yield on the 10-year German government note – the European benchmark – was also up sharply last week, up nine bps on the week to 0.37%, its highest level since June 20.

So what did Trump say about the Fed that was so disturbing that it led some bondholders and traders to dump Treasury bonds and German Bunds?

In an interview on CNBC after Fed Chair Jerome Powell told the Senate Banking Committee that given the strong economy and rising inflation, “the best way forward is to keep gradually raising” interest rates, Trump said he was “not thrilled” about more rate hikes. “I don’t like all of this work that we’re putting into the economy, and then I see rates going up. I am not happy about it.”

Trump hedged that a bit by saying, “I’m letting them do what they feel is best.” But then, following the brouhaha that followed, he added more fuel to the fire with a tweet on Friday with more criticism of the Fed: “The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done.”

What Trump’s fans love about him – and sufferers from TDS can’t stand about him – is his penchant for daring to go where others in his position have never dared – and in the most in-your-face way possible – then doubling down on it when he sparks a controversy. He seems to particularly relish saying things that presidents of the United States aren’t supposed to say, like criticizing our defense and trade partners in public. It’s simply “undiplomatic” to do that, although doing it in private hasn’t seemed to work, either.

Now it’s the Fed’s turn in Trump’s crosshairs. It’s not clear why the Fed – or any other government agency, whether deemed to be “independent” or not, like the Supreme Court – should be exempt from public criticism. Indeed, many commentators are now asking, “What took him so long?”

“Now I’m just saying the same thing that I would have said as a private citizen,” Trump said in the CNBC interview, perhaps anticipating the controversy that followed. “So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t care less what they say, because my views haven’t changed.”

“Lots of people talk about the Fed. That doesn’t mean they’re jawboning them,” Larry Kudlow, Trump’s main economic adviser, said, adding that Trump was not “in any way, shape or form trying to influence the Fed or undermine its independence.”

Now, there’s certainly a big difference between a private citizen and the president of the United States criticizing the Fed. However, that doesn’t mean the president can’t speak his mind. Everyone else does. And no amount of criticism is going to get this president to shut up – if anything, it’s just going to get him going again.

What’s gotten lost in this controversy is whether Trump was right in his criticism of the Fed’s rate policies rather than his right to voice them. And the answer to that is no. Instead of criticizing the Fed’s monetary tightening, maybe Trump should embrace it as a vindication of his turning the economy around after eight years of stagnation, something the previous Fed regime couldn’t do despite 10 years of zero interest rates. Then again, monetary policy is no substitute for good tax and regulatory policies.

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George Yacik Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

3 thoughts on “Should The Fed Be Above Criticism?

  1. Differences, cold war and controversy between politicians and Central Banks in the context of policy making, are very common and found almost Globally, simply because of objectives of both are mostly quite different, with equally different perspectives.

    As par as the " Trump Derangement Syndrome" (TDS) is concerned, I think, neither fed chairperson personally, nor entire fed team find it too difficult to get even any primary idea about the end out-come of TDS, and how it will ultimately influence Bond and even on Currency market, and upon overall Economy.

    Trade war and Interest Rate Gimmicks both are just like dual edged sword, and impacts as well spiral effects thereof, are very uncertain, so respective policy change therein should must be taken place slowly and in a faze manner, in accordance with results, found thereof, initially.

  2. The Fed should only be criticized by people who have finance degrees beyond the fed chairman. Congressmen should never criticize the fed unless they have a PhD in economics.

    1. In your mind has the performance of the federal reserve been so excellent that it has been beyond criticism? It doesn't take a genius to know when someone is stealing your money. You will never convince me that they are even trying to stop the boom and bust cycles of the past.

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