A 47% plurality of respondents believes the nominations along with the president’s critical remarks about the Fed are “reducing the central bank’s independence” and they think that could have implications for markets and the economy.
“Stacking the Fed with partisan hacks would alter how the market views the Fed’s decisions even if two appointments don’t change the Fed’s decision making,” said Diane Swonk, chief economist at Grant Thornton. “Over time, the loss in credibility will mount.”
For the moment, respondents don’t believe the president’s criticism will affect monetary policy, but there’s more concern now. Sixty-five percent say the president’s comments has “no effect on rate hikes” but that is down from 83% when the question was last asked in November. And 22% believe Trump’s remarks make rate hikes less likely, up from 14%.
Robert Brusca at Fact and Opinion Economics said the president has a right to speak out on Fed policy, “but it’s dumb. … The Fed may wait too long to do what the president wants it to do to avoid the appearance of being bullied successfully.” Brusca thinks the Fed might actually have raised rates in December to avoid the appearance of caving to political pressure.
It also appears that markets are getting somewhat more accustomed to the president’s Fed criticism. Trump has broken with a decades-long tradition of presidents not commenting on monetary policy. In July, when the question was last asked, 83% found Trump’s commentary inappropriate. Now, it’s 61%.
“These are very different times and I don’t believe this challenge to the Fed’s independence will continue after Trump leaves office,” said Chris Rupkey, chief financial economist, MUFG.