Fischer: Powell hiked rate because Trump said he shouldn't

Stanley Fischer Photo: Eyal Izhar

Speaking at the IDC Herzliya, Prof. Stanley Fischer said that if re-elected in 2020, President Trump won't reappoint Jerome Powell as Fed Chair.

"If President Trump wins the 2020 Presidential elections, then he will not reappoint Jerome Powell to a second term as US Federal Reserve Chair, he will find somebody else and he will appoint him and that will lead to other policies," former Bank of Israel Governor Stanley Fischer said this morning at the Annual Conference of the Tiomkin School of Economics at the Interdisciplinary Center in Herzliya.

Fischer who also served as US Federal Reserve Deputy Chair between 2014 and 2017 added that this demonstrated that, the Fed is, "not completely independent of politics."

Fischer speculated that the Fed's last interest rate rise in December 2018 stemmed from the desire of the Fed's leadership to resist the pressure being brought to bear on it by the US President, who had called on the Fed not to lift the interest rate.

Fischer recounted the precedent of US Federal Chairman Paul Volcker who was called into the White House library in 1983 by President Ronald Regan, who looked embarrassed, while then Secretary of the Treasury James Baker ordered him not to raise the interest rate before the elections. Knowing such interference was illegal, Volcker said nothing and left the room - behavior that probably led to him being fired. "Something like that has been happening now," Fischer said.

What complicated the matter with Volcker, according to Fischer, was that the Fed had no plans to raise the interest rate. "And that's the same problem facing Powell. There was a good chance that if the President had remained silent, then there wouldn't have been a rate hike in December. And why did he do it? Because Trump said everywhere that he went that they can't raise the interest rate. That's not a desirable situation for the President to express that he wants a monetary policy."

Trump, according to Fischer, is much more sophisticated in his use of the media than previous presidents. "At the end of 2018, he said that the Fed does not need to raise the interest rate because that would lead to a recession. So if there will be a recession he'll say 'I told you so' and if not he's stay quiet. That creates a very uncomfortable situation for the Fed Chair."

Published by Globes, Israel business news - en.globes.co.il - on June 16, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Stanley Fischer Photo: Eyal Izhar
Stanley Fischer Photo: Eyal Izhar
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