Trump is going to influence the US monetary policy or even to destroy the Fed’s independence. This is what many analysts say after the recent President’s comments. But are they right? We invite you to read our careful examination of Trump’s remarks about the Fed’s policy and find out what does it imply for the independence of the US central bank and the gold market.
“I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” This is what President Trump said in an interview with Reuters on August the 20th, 2018. The financial markets did not like his comments and the US dollar declined in a response. Investors worry that Trump’s growing discontent may lead to clashes between the White House and the US central bank, and potentially to weakening or even to the loss of the Fed’s independence. In such a scenario, we could see higher inflation, as central bank’s independence promotes price stability.
Are these concerns justified? Well, unfortunately yes, at least to some extent. When politicians alter monetary policy for their own goals, it never ends well (for the economy, gold usually shines then). You can ask the Turks who suffer now because of the depreciation of the Turkish lira, resulting from President Erdogan’s influence on the central bank.
OK, I know what you are going to say: the United States are not Turkey. That’s true, but there are ugly precedents even in the US (actually, the entire premise of Fed’s independence is in a sense absurd, as the central bank was created by the Congress and the seven members of the Board of Governors are nominated by the POTUS and confirmed by the Senate). For example, there was a clash between President Lyndon Johnson and Fed Chair William McChesney Martin, which supposedly included physical assault (as the story goes, Johnson summoned Martin to his Texas ranch and physically shoved him around his living room).
