This week, Kevin Warsh, former Federal Reserve governor — who was among those under consideration to replace Janet Yellen as head of the United States’ central bank — described a shocking (but not surprising) interaction with President Donald Trump in an interview with Politico. “In some sense the broader notion of an independent agency,” he said, “that’s probably not an obvious feature to the president.”
The Fed is supposed to be an entirely independent body, completely separate from politics — but Trump doesn’t seem to see it that way. Of course, that Trump has trouble respecting the supposed independence of the governmental institutions around him is more of a feature of his presidency than it is a bug.
Warsh, 48, was one of five candidates President Trump reportedly considered to be the chair of the Federal Reserve. He ultimately landed on Jerome Powell, a Republican member of the Fed’s board of governors appointed by President Barack Obama in 2012. (He could have re-nominated former Fed chair, Yellen, and publicly toyed with the idea.)
Warsh spoke with Ben White on the Politico Money podcast about the interview process for the post he was passed up for and revealed Trump made quite clear what he had in mind from his Fed chair in terms of interest rates and independence.
“If you think it was a subject upon which he delicately danced around, then you’d certainly be mistaken. It was certainly top of mind to the president,” Warsh said when describing Trump’s questions on interest rate policy. “The president has a view about asset prices and stock markets. He has a view based on his long history in his prior life as a developer and real estate mogul on the role of interest rates.”
He said the broader notion that the Fed is to act independently in the best interest of the economy instead of political interests is “probably not an obvious feature to the president.” When asked whether Trump understood why it was important for the Fed to be independent from political pressure, he replied, “This might be a good time for a no comment.”
It’s not uncommon for presidents to put appointees in place who reflect their views. Trump has been more public and, at times, ominous about it. He appears to subscribe more to a 19th century system of patronage, where appointees were expected to do the president’s bidding and given positions as a reward for their support, as opposed to the 20th century model of more independence, said Robert Roberts, a professor of political science at James Madison University. “It’s the whole notion of how you perceive the bureaucracy — do you want them to exercise neutral competence, in other words, that they’re serving the public and not necessarily the president?” he said.
Trump is supposed to leave the Fed alone
The Federal Reserve is the central bank of the United States. One of its main responsibilities is managing interest rates and influencing the availability and cost of credit in the American economy. It sets the “federal funds rate” — the interest rate banks charge one another for overnight loans — and can adjust the rate to sway the economy.
Trump has made no secret of his preference for low interest rates. He told the Wall Street Journal in April 2017 that he likes a “low-interest rate policy” and reportedly told Yellen in his interview with her about keeping her job that he considered her a “low-interest-rate” person, like himself.
Trump’s comments to Warsh matter because the Fed is supposed to be able to act on its own without political pressure, whatever the president does or doesn’t want out of interest rates. It’s got two goals: to maximize employment and stabilize prices — which essentially means keeping the unemployment rate low and targeting a 2 percent inflation rate.
But the president has plenty of reason to prefer interest rates stay down. Increasing interest rates can spook the stock market, because they make borrowing more expensive and therefore might curtail corporate investment in growth. They also make other investment vehicles, such as bonds and CDs, more attractive. Rising interest rates can also slow economic growth and are, actually intended to keep the economy from overheating.
Trump has spent much of his presidency touting the stock market’s successes and the American economy’s strength, and he doesn’t want to risk anything that might affect them. (In fact, during the campaign, Trump often criticized the Fed and accused it of keeping interest rates artificially low to prop up the Obama economy.)
On a more Trump-specific level, the president is a real estate mogul, and the real estate industry generally wants rates to be low so borrowing costs for new projects stay that way, too. And we all know Trump hasn’t sold his businesses.
“Trump is the first president in American history not to have previous public service in his background, so it’s not surprising he views the purpose of the presidency and the government the same as his business — to serve him,” said Jordan Libowitz, communications director for watchdog group Citizens for Responsibility and Ethics in Washington, in an email. “We’ve seen him defend Kellyanne Conway’s ethics violations because she was helping the family and seen him chide the Justice Department for not protecting him from criminal investigation. We’ve seen it reported again and again: the thing most important to President Trump is loyalty to President Trump. As John Adams wrote, we have ‘a government of laws and not of men.’ It would be good for the president to remember that.”
We should assume Trump doesn’t respect the independence of any institution around him
That President Trump has authoritarian tendencies and does not see that he is not supposed to meddle in some aspects of the government is not surprising, though it is still troubling.
Trump has repeatedly sought to undermine the Justice Department and has publicly fought with the FBI. The president told NBC’s Lester Holt that he fired former FBI Director James Comey because of the “Russia thing” and has toyed with the idea of ousting special counsel Robert Mueller, who is leading the investigation into Russian meddling in the 2016 election and possible collusion between the Trump campaign and Russia.
In February, Trump prodded Attorney General Jeff Sessions to investigate the Obama administration over the Russia affair, and in an April interview with Fox & Friends, Trump said he’ll stay out of the Justice Department’s way — for now. “I’ve taken this position that I will not be involved with the Justice Department,” he said. “I’m very disappointed in my Justice Department. I may change my mind at some point because what’s going on it’s a disgrace, it’s an absolute disgrace.”
“It forces [Trump’s appointees] into a position of making very difficult decisions if they’re being pressured to do things that they can’t ethically do or refuse to do because they believe they don’t have the legal authority to do so, then they have to quit,” Roberts, the political science professor, said.
Trump has said he would “absolutely” consider an attempt to break up the 9th Circuit Court of Appeals, the West Coast’s court system that has a liberal bent. And the president has demonstrated time and time again he doesn’t respect the norms and traditions of government where he doesn’t see fit — by not separating himself from his businesses, consistently attacking and threatening the press, and actually profiting from the presidency.
Warsh’s revelations about Trump’s comments to him aren’t surprising. But it’s also another warning we should assume even the most independent institutions in government aren’t operating without at least some risk of presidential interference.