2018 Fed Transcripts Reveal Trump’s Influence Was Minimal Despite Trade Policies

Summary

In a review of Federal Reserve policies during 2018 highlights the contentious relationship between President Trump and the Central Bank. The leadership change from Janet Yellen to Jerome Powell in 2018 coincided with a turbulent year, marked by trade conflicts and economic uncertainties triggered by the Trump administration’s new policies. The Fed, however, remained immune to direct political pressure. There’s an analysis of policy decisions from the perspective of key figures in the Fed, including Jerome Powell and Richard Clarida. Powell’s term is set to extend until May 2026, adding intrigue to the potential outcome of the 2024 national elections. This analysis has implications for currencies, bond rates, and equity valuations.

Fed’s 2018 Policies Amid Political Pressures

Within the Federal Reserve, an institution created to remain impervious to direct political pressures, President Trump’s criticism left little impression, as revealed in recent transcripts from the eight 2018 central bank policy meetings. This period marked a shift from Janet Yellen’s leadership to Jerome Powell (selected by Trump).

Repercussions on Economy and Policy

The economy demonstrated robust growth with low unemployment. However, the Trump administration’s restrictive trade policies created uncertainties in the monetary policy discussion, prompting considerations of possible inflation and growth shifts due to the new tax cuts.

Interview Impact on Financial Conditions

By the Federal Reserve’s November 2018 meeting, financial conditions were notably more constrained, especially due to a Powell interview on Public Broadcasting Service. Its impact led to a stock sell-off and a dramatic increase in corporate bond credit spreads.

Unsettled Economic Landscape and Policy Adjustments

At the December 2018 meeting, the Federal Reserve raised its benchmark overnight interest rate, indicating a shift in the tightening cycle. Policymakers analyzed the influence of new trade policies on the economy without explicit reference to Trump.

Trump and Central Bank: A Strained Relationship

Trump’s dissatisfaction with Powell escalated during his presidential tenure. However, should Trump return to office after the November 5th election, he will have to endure 16 additional months under Powell’s leadership at the Federal Reserve.

The dynamics within the Federal Reserve, their decisions and their relationship with the presidency, have significant implications for foreign exchange markets and could affect the valuation of dollar-based assets.

PIP Penguin
Logo