An expert at Trump’s alma mater sees an obvious starting point for an eventual war on the Federal Reserve


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President Donald Trump has so far mostly respected Federal Reserve independence, but that is likely to change if economic conditions deteriorate, says Wharton Fed watcher Peter Conti-Brown.
Conti-Brown says Trump’s eventual war on the central bank will probably start with a negative report on Fox & Friends, followed by an angry tweet.
“When that occurs, expect open warfare to be declared,” he warns.

It will start with a negative comment on Fox & Friends. And then a presidential tweet.

How the Federal Reserve reacts to an attack from President Donald Trump under the leadership of his own appointee, Jerome Powell, will be a test of the central bank’s hard-fought, always-fragile political independence.

That’s how Peter Conti-Brown, assistant professor of legal studies and business ethics at Trump’s alma matter, the Wharton School of Business, sees the president challenging the central bank’s interest rate hikes at the first sign of considerable market or economic weakness.

“Watch to see how Fox & Friends deals wth the Fed,” Conti-Brown told a group of reporters at a Wharton-sponsored seminar. “So far it’s been with indifference.”

The Fed is set to raise interest rates again Wednesday as the economy keeps humming along and unemployment remains at an 18-year low. Wage growth, however, remains weak, and a key concern for policymakers.

Conti-Brown sees the risk that Trump’s sharp expansion of the budget deficit, including large tax cuts aimed at the wealthiest Americans, at a time of relative economic strength, could force the Fed to tighten policy in a way that threatens the recovery. At the same time, the administration’s draconian immigration policies are looking to reduce the inflow of new workers into the economy.

“This is the textbook instance of an independent Federal Reserve taking the punch bowl away,” he said. “This is extraordinary fiscal pressure without some of the ballast that population growth through migration can provide. It’s to me [the source of] a coming confrontation between the Trump administration and the Federal Reserve.”

Conti-Brown, author of “The Power and Independence of the Federal Reserve,” explained how the scenario might play out:

“Watch the president’s Twitter feed. I’m completely serious and I’m surprised to hear myself say this. What will have to happen [is] … number one will be some kind of downturn a market downturn or a recession; followed by attribution of this downturn to the Fed; followed by its coverage on Fox & Friends. When that occurs, expect open warfare to be declared.”

SEE ALSO: A finalist for Fed Chair warns Trump doesn’t get a basic function of the Federal Reserve — and it poses a threat to economy

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Source:: Businessinsider – Finance

      

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