Donald Trump stoked fears that the Federal Reserve’s independence is under threat as he stepped up his demands for easier monetary policy a day after advocating the appointment of a second political loyalist to the central bank.
The president told reporters on Friday the Fed should embark on “quantitative easing” instead of continuing to pare its holdings of bonds bought during its crisis-era stimulus programme, saying it would turn the economy into “a rocket ship”.
The comments, which he made despite strong jobs data, came amid barrage of criticism from economists over Mr Trump’s decision to propose Herman Cain, a former Republican presidential contender and vocal backer of the president, to be a governor of the Fed’s powerful board.
Mr Cain chairs a political action committee that aims to combat “disrespectful, dishonest and destructive news” about the president.
Mr Trump has also said he wants to nominate Stephen Moore, a former adviser to his 2016 presidential campaign and co-author of a book praising his economic policies, to the Fed board.
The Fed has come under pressure from previous administrations over monetary policy, but the relentless public campaign being waged by the White House for the past year is unprecedented. Until recently, the president has won praise for his Fed appointments, but his latest proposed nominees, coupled with an increasingly vociferous campaign for easier money, have provoked unease on Wall Street.
The moves represented a further “attack on institutional norms,” said Diane Swonk, chief economist at Grant Thornton. “The worry is you will have two players on the Fed that don’t really understand how it works and who may be willing to bend to the political whims of the president.”
Mr Trump’s remarks come despite new signs that the US economy continues to perform well. Data published on Friday showed strong job and wage growth in March, easing concerns that the US faces a sharp slowdown.
Some 196,000 jobs were added last month and unemployment hovered at just 3.8 per cent, while pay rose at a robust 3.2 per cent over the same month a year ago.
Mr Trump appeared to ignore the new data, saying the economy could have grown faster without efforts by the Fed to put the brakes on the economy last year, when many economists worried it was at risk of overheating.
“I personally think the Fed should drop rates; I think they really slowed us down,” Mr Trump said. “There is no inflation. In terms of quantitative tightening it should actually now be quantitative easing.”
The White House has defended its latest nominees and insisted it has no desire to impinge on the central bank’s decision-making. Larry Kudlow, the director of Mr Trump’s National Economic Council, said this week that the administration could have its own views on policy “without breaking the independence of the Fed”.
Still, both the US bond and stock markets rallied after Mr Trump’s remarks, a sign that investors think the president’s effort could have an impact on monetary policy.
Michael Gapen, an economist at Barclays, said in a report on Friday that the proposed nominations of Mr Moore and Mr Cain represented “the beginning of the politicisation of the Fed”.
It remains to be seen how the two prospective nominees will fare if they face Senate confirmation. After news of Mr Cain’s likely nomination broke on Thursday, Mitt Romney, the Utah senator and former Republican presidential candidate, told Politico: “I would like to see nominees that are economists first and not partisans.”
Mr Cain, a former chief executive of Godfather’s Pizza, a fast-food chain, dropped out of the 2012 race for the Republican presidential nomination following allegations of sexual harassment and infidelity, which he denied. Mr Moore was this week challenged by two senior Democratic senators after it emerged that he owes tax debts to the federal government.
In his note, Mr Gapen said: “In our view, the experience of each candidate does not seem to be the main reason the Trump administration is considering their nominations. The administration has been openly critical of recent Fed interest rate increases and would prefer lower interest rates and a more accommodative monetary policy stance. Both Cain and Moore have altered their views on appropriate policy in this direction.”
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