Last week on CNBC, President Donald Trump upbraided the Federal Reserve for raising interest rates. “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” he said.
The president’s remarks elicited a furious response in the financial press. “Attacking central bank is one more step in what seems like a Presidential strategy of turning the United States into a banana republic,” tweeted Larry Summers, Clinton’s former treasury secretary and wannabe Fed Chair. In a lead editorial, The Washington Post scolded the president for once more trampling a presidential norm: “Presidential respect for the independence of the Federal Reserve is an unwritten rule but vital to modern American governance.”
No question, Trump was once more busting an unwritten presidential norm. But tradition aside, why should the Federal Reserve, dominated by bankers and their servitors, be insulated from the democratic discourse?
The decisions the Fed makes on interest rates—in this case, raising them to preempt anticipated rising inflation—are inherently political judgments about values and priorities. Is future inflation such a concern that it is necessary to raise interest rates, slow the economy, and throw people out of work in order to get in front of it? Or after years of wage stagnation, is it better for the Fed to give the economy its head, even put up with a little inflation, hoping that as workers grow scarce, companies will be forced to raise wages?
Nightmares about inflation galloping out of control are largely fanciful inventions of creditors worried that debtors will gain an edge. Progressive economists have long argued that allowing the Fed to control these decisions rigs the rules against working people in favor of Wall Street. As the economist Dean Baker wrote, “The outraged reporter gang might want to study up some on the meaning of democracy.”
The tempest over the Fed illustrates what is becoming a repeated syndrome. In his chaos presidency, Trump clearly relishes disrupting established convention and institutions. Often—as in his vile slander of immigrants, his racist pandering to neo-Nazis, his incessant attacks on “fake news”—he spreads poison and division, seeking to delegitimize checks on his misrule. But in some areas—particularly those central to his populist posturing—he challenges entrenched institutions and policies that are long overdue for transformation. In many cases, his targets are those that progressives have criticized for years.