Editorial | Like it or not, politics is creeping into the US Federal Reserve
- With Donald Trump nominating Herman Cain and Stephen Moore to join the board of governors, the world’s most important central bank could lose its neutrality
The United States Federal Reserve is the world’s most powerful central bank, with its every move followed and scrutinised around the globe. Hong Kong has many avid Fed watchers, too, as our all-important housing market is most sensitive to interest rate cycles whose directions are dictated at the Fed, thanks to our peg to the US dollar.
The latest news is of concern as US President Donald Trump has nominated two controversial figures to be board governors of the Fed. Herman Cain, a former pizza chain executive, and Stephen Moore, a right-wing pundit, seem to have been chosen more for their political loyalty than expertise. There is widespread criticism that Trump is picking Fed governors the way he selects judges and industry regulators – for their ideology instead of professionalism.
The Fed has, for a long time, been perceived as neutral and non-partisan. If its monetary policy is seen to be following the president’s dictates, it will send out a worrying message to the world. This is by no means a hypothetical danger. The American president has been taking potshots at Fed chairman Jay Powell for months for insisting on raising interest rates. When Powell recently signalled he would put rates on hold because of deteriorating conditions for the global economy, Trump’s supporters were quick to portray the policy change as a victory for the White House.
No one should be surprised by Trump’s lack of respect for the Fed. Rightly or wrongly, few institutions are seen by the American electorate as being more responsible than the Fed for the loose economic policies that have bailed out Wall Street and the rich after the last global financial crisis but impoverished those on Main Street.
The Fed’s accommodative policies over a decade have fuelled widespread resentment and populism that helped send Trump to the White House. Trump’s attacks on the Fed may upset the intellectual and ruling elites in New York and Washington, but they appeal directly to his core supporters.
