White House economic adviser Larry Kudlow said President Donald Trump isn’t trying to “damage” the Federal Reserve’s independence but rather reshape the officials' perception of the economy because the U.S. central bank "could use a little fresh air.”
“We have a point of view, the president has the point of view with which I concur, and that point of view is that [the] Fed went too far [with rate hikes] and we’re concerned not about the immediate [economy]. The immediate economy looks good,” the veteran financial guru and former Ronald Reagan adviser told Fox Business Network’s Stuart Varney.
“This is a precautionary view on our part,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
Trump said on Friday the Fed should lower interest rates and take other unconventional measures to ease pressure on an economy that he said they slowed down, Reuters reported.
“I think they should drop rates,” Trump told reporters. “I think they really slowed us down. There’s no inflation.”
Trump also suggested that the central bank pursue an unconventional monetary policy called “quantitative easing” that was used to nurse the economy back after the global financial crisis. The technique used from 2008 to 2014 involved buying trillions of government-sponsored bonds.
“It should actually now be quantitative easing,” Trump said.
Meanwhile, Kudlow praised Trump for stoking economic growth since becoming president with tax cuts and fewer regulations as the president ended Barack Obama's "war on business."
“We have not had a strong economy like this in several decades – I don’t want any threats to it if possible,” said Kudlow, who served as the Trump campaign's senior economic adviser.
On Thursday, Trump said he plans to nominate his political ally Herman Cain, the former head of Godfather’s Pizza, to one of two vacancies on the Fed’s seven-member Board of Governors. Cain runs a political fundraising group that has spent more than half its money supporting Trump’s re-election, Reuters reported.
Two weeks ago, Trump said he would nominate conservative economic commentator Stephen Moore to the other vacant seat on the Fed’s board. Moore is also a longtime Trump ally who has joined him in criticizing last year’s rate hikes.
When Varney asked whether Trump is politicizing the Fed with the proposal, Kudlow responded: “President Trump has every right in the world to make his appointment” and “this is a new era and you have new policies to rebuild" the economy.
“I believe more people working with productivity on the heels of supply side tax cuts and deregulation is actually going to increase growth and reduce the inflation rate,” he said.
“And I think some of the old school thinking and some of the old econ metric models in the Central Bank could use a little fresh air, a little different opinion about that,” Kudlow said.
Trump’s repeated public attacks on Fed policy and his intention to nominate two political allies to the central bank’s board of governors has led some analysts to see the economic policymaker’s cherished independence as under attack. The White House has said it does not wish to undermine the central bank’s independence.
The renewal of quantitative easing, Trump said, should be in addition to interest rate cuts - a likely worrying thought, at this point, for Fed officials who describe such a combination of tactics as only appropriate in a dire downturn.
Half a dozen Fed officials in recent days have touted the underlying strength of the American economy and argued a recent spate of weak data on business activity is more likely to prove fleeting than lasting. None said they currently back a rate cut and some have said rate hikes may eventually be necessary.
U.S. President Donald Trump talks to reporters as he departs for travel to the U.S.-Mexico border from the White House in Washington, U.S., April 5, 2019. REUTERS/Carlos Barria
But a Fed chaired by a Trump appointee, Jerome Powell, has stopped raising rates after four hikes last year, saying that there are enough economic risks, including a slowdown in Europe and China, to warrant patience. The Fed’s policy rate is currently between 2.25 and 2.5 percent.
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