ANALYSIS: Trump tries to juice the economy by attacking the Fed Chair he appointed
There’s no other way to say it: this is not normal.
The President of the United States has just branded the Chairman of the U.S. Federal Reserve, Jerome Powell, as an “enemy,” disregarding the historic independence of America’s central bank.
It’s not entirely unsurprising.
Donald Trump has spent weeks publicly criticizing Powell over his refusal to slash interest rates. He has even talked about removing him from his post.
It’s clear the president is worried about the threat of a recession and what that would mean for his own re-election prospects in 2020.
A healthy economy is one of the few things Trump has to campaign on. It’s a counter-balance to his dismal approval numbers.
“You have no choice but to vote for me because your 401K, everything is going to be down the tubes,” said Trump to a crowd of supporters in New Hampshire last week.
“So whether you love me or hate me, you’ve got to vote for me,” he warned, suggesting only he could keep the economy afloat.
The reality is that cutting rates now would artificially juice the U.S. economy, at a time when the markets are near historic highs, and unemployment is at a 50-year low.
The economy has “continued to perform well overall,” according to Powell.
Rate cuts now would be like giving steroids to an athlete who is already at the top of their game, fearing they might have an off-season somewhere down the road.
But Trump is worried about the timing of that bad year.
WATCH: Recession fears grow despite booming U.S. economy
The signs of a recession are looming just in time for the next election.
A survey of business economists found that nearly three quarters believe a recession will happen by 2021. More recently, U.S. steel announced the temporary layoff of hundreds of workers.
The U.S.-China Trade war is taking its toll, so are the costs of Trump’s tariffs.
“Just the uncertainty is causing a lot of businesses to hold back on investments that they would otherwise make,” explained Ken Simonson, chief economist with the Associated General Contractors of America.
So when Powell refused to commit to further rate cuts, and to “act as appropriate,” in a Friday speech, Trump launched a rocket via Twitter.
“As usual, the Fed did NOTHING!” he wrote, adding “My only question is who is our bigger enemy, Jay Powell or Chairman Xi?” in reference to the ongoing trade dispute with China.
Not only did Trump appoint this apparent “enemy” to the job of Fed Chair, but now he’s comparing him to a foreign dictator.
This is not normal, for good reason.
“This is very unusual,” said Tara Sinclair, a Professor of Economics at George Washington University.
“There’s this agreed upon principle in economics that the central bank, in this case the Federal Reserve, should be independent from the government, particularly as we approach any kind of election,” she explained.
The theory is that elected officials might seek to do exactly what Trump is trying to do now: artificially inflate the economy to their own benefit, which would then leave the Federal Reserve with fewer tools at its disposal if and when the economy does slow down.
WATCH: President Trump suggests re-election will halt recession
In the past, interest rate cuts have been that favoured method for dealing with a recession or downturn, but rates are already at historic lows.
“The Federal Reserve is looking at interest rates that really look more like interest rates you would normally see when we’re already in the midst of fighting a recession,” said Sinclair, warning “they don’t have a lot of ammunition in the traditional sense to be able to react if a recession does come on.”
Powell has so far shown no signs that he’s willing to acquiesce to the pressure from Trump.
In July he told lawmakers he wouldn’t resign if Trump tried to fire him. The Federal Reserve Act protects the Fed Chair, and says they can only be removed for cause.
At this point Trump is left to yell into the wind about a monetary policy he can’t control, while the White House looks for ways to curb the independence of a Fed Chair it doesn’t like.
If the economy does take an actual downturn before the election, all bets are off as to how Trump will respond.
© 2019 Global News, a division of Corus Entertainment Inc.