By Howard Schneider
WASHINGTON (Reuters) – U.S. President Donald Trump may feel he is “stuck” with Federal Reserve Chairman Jerome Powell, whom he has blasted for engineering four interest rate hikes since Trump appointed him, but none of Trump’s other Fed appointees has stood in the way of the tightening campaign and at least one has said even higher rates may be necessary.
The voting records and public statements of Trump’s Fed appointees, who now form a solid majority of the Fed’s Washington-based board of governors, show not only consensus around the recent increases, but no support so far for the rate cuts Trump has demanded.
A possible upcoming nominee to the Fed, economic commentator Stephen Moore, has said he agrees with Trump that rates should be cut and had earlier called for Powell’s ouster. Trump has mulled whether he could fire Powell, but in a March 8 phone call, reported by the Wall Street Journal, acknowledged he was “stuck” with the Fed chair for Powell’s full four-year term that runs to February 2022.
If Moore does take a seat alongside Trump’s appointees at the Fed, at this point he would be the outlier.
“I am comfortable with the current stance of our policy,” Trump’s newest appointee, Fed Governor Michelle Bowman, said in February in her only comments about monetary policy to date.
Bowman joined the Fed in November, when the administration was growing agitated about rising volatility in financial markets. She voted for the December rate increase that has become a particular target of Trump’s ire and point of blame for, in his view, holding back the economy.
The White House on Tuesday announced Bowman would be renominated for a full 14-year term to follow the end next January of the short, partial term she was appointed to fill.
Trump’s hand-picked vice chair, Richard Clarida, voted for the December increase and the one before it in September, which was approved shortly after he joined the Fed board.
Randal Quarles, who was the first appointment Trump made to the Fed as his presidency took shape in 2017, voted for five rates hikes from December of that year to December 2018, and his most recent comments show the wide and sometimes paradoxical gap between the president’s view of what the Fed should be doing, and those of the people he has chosen to oversee the central bank.
In what amounted to a bullish defence of where the economy is heading, Quarles last week said in fact that rates may need to move higher precisely because Trump’s tax cuts and policies may produce a “persistent” boost to productivity and growth.
“Further increases in the policy rate may be necessary at some point, a stance I believe is consistent with my optimistic view of the economy’s growth potential and momentum,” Quarles said in remarks at the Manhattan Institute last week.
For now the Fed intends to hold rates steady, a position it reached both as Trump publicly called for a halt to rate increases, but also – and what Fed officials say mattered to them – as economic and financial data globally indicated a broad slowdown from the faster-than-expected growth of 2018.
Trump blames the weaker data on what he called in a tweet on Thursday the Fed’s ‘destructive’ rate hikes. Others see a number of causes, including Trump’s trade policies, and feel growth is likely to continue though at a tepid pace.
“We had this synchronized acceleration of growth a couple of years ago. Now it is synchronized deceleration and a slowing momentum across the spectrum,” International Monetary Fund Managing Director Christine Lagarde said in Washington on Tuesday. “Nobody wins a trade war.”
RULE BY CONSENSUS
Unanimity among Fed board members is largely the norm. The Fed strives to be a consensus-driven organisation, led, but not dictated to, by a chair whose job is to canvas and shape opinion among as many as 18 other policymakers split between the seven-member board based in Washington and 12 regional bank heads.
The regional bankers, five of whom each year have a formal vote on interest rates even as all 12 participate in Fed debates, are part of a now century-old system meant precisely to guard against too much power residing with the board and the chair in Washington.
There are currently two open board seats.
Even as Fed officials have begun to speak more frequently and openly in public, formal dissents against any given policy action have in general declined since the 1970s. The last one by a board member was in 2005 by then Governor Mark Olson against a rate increase.
But that doesn’t necessarily mean conformity inside the room when the Federal Open Market Committee meets every six weeks. Opposition to some of the extraordinary policies put in place to fight the 2007 to 2009 financial crisis, for example, led former Governor Kevin Warsh to resign even though he never dissented, maintaining a unified face for the Fed during a treacherous time.
Yet with the current group of appointees there is little sense of the sort of behind-the-scenes warfare that occurred, for example, when a group of governors tried to revolt against the recession-inducing steps pushed by 1980s-era Fed Chairman Paul Volcker to curb runaway inflation.
Transcripts of recent Fed meetings won’t be released for five years, but the summary minutes of sessions last fall show the central bank sifting through data, coming to grips with developing risks, and shifting their stance as a result.
By January, “all participants expressed the view that it would be appropriate for the Committee to maintain” the existing interest rate, the minutes stated.
“Several” said continued growth might warrant higher rates eventually.
There was no mention of support for a rate cut.
(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)