This is why presidents shouldn’t mess with the Fed

Author: , Post Date: December 17, 2018
Excerpt below of “This is why presidents shouldn’t mess with the Fed”

New York (CNN Business)1. Fed in the hot seat: President Donald Trump may have boxed Federal Reserve chief Jerome Powell into a corner that neither of them want to be in. Wall Street widely expects the Fed to raise interest rates on Wednesday. But Trump told Reuters last week that another rate hike would be “foolish.” He said on Fox News: “Hopefully the Fed won’t be raising interest rates anymore.”

Yet Trump’s repeated attacks on the Fed mean the central bank may not be able to pause now — even if it wanted to. Forgoing a rate hike, one that was already baked into the market, would rattle nervous investors and prompt talk that the Fed is caving to White House pressure.

“It would shock markets if they didn’t hike and it would show political capitulation,” said David Kotok, co-founder and chief investment officer at investment firm Cumberland Associates. “Trump’s attacks on the central bank are of no help to anybody.”

And bigger picture, the Fed must protect the central bank’s reputation for being independent. Without that, investors could lose faith in the stability of the system.

“History records the misuse of central banks influenced by political forces resulting in inflation and eventually hyperinflation. Venezuela, Zimbabwe, the Weimar Republic,” Kotok said. “The importance of central banks’ independence cannot be overstated.”

Read the full article This is why presidents shouldn’t mess with the Fed at CNN Business.
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