Economists warn a Trump-controlled Fed could bring short-term boost, long-term pain

President Trump has signaled he wants the Federal Reserve to lower short-term interest rates, and New York Times columnist Jeff Sommer warns that cutting rates beyond what economic conditions warrant could create a short-term boom while producing longer-term problems such as higher inflation and damage to the Fed’s credibility.

Sommer quoted economists including Tim Duy of SGH Macro Advisors, who said the next Fed chair “would have to resist the pressure from Trump and do the right thing,” warning that an unwarranted sharp cut could give the economy a “sugar high” that helps Republicans electorally but harms the economy over time.

The political struggle over the Fed has reached the Supreme Court, where justices heard arguments on President Trump’s attempt to fire Fed governor Lisa Cook; Fed Chair Jerome H. Powell attended the session. The Justice Department has issued subpoenas as part of a criminal investigation into Mr.

Powell, whom Sommer quoted as calling the probe a contrived consequence of the Fed setting rates based on its assessment of the public interest. Sommer noted Mr. Trump told The Wall Street Journal he wants rates near “1 percent and maybe lower than that,” while the federal funds rate currently stands between 3.5 and 3.75 percent.

Key Topics

Business, Federal Reserve, Donald Trump, Jerome Powell, Lisa Cook, Tim Duy