President Donald Trump’s pressure for interest-rate cuts threatens the independence of the Federal Reserve, former Fed Vice Chair Stanley Fischer warned.
Speaking at the European Central Bank Forum in Sintra, Portugal, Fischer said the U.S. economy “is doing reasonably well, but you wouldn’t know that if you listen to the president of the United States.” He said lower borrowing costs would boost employment — in an already strong labor market — but at the cost of a mortal blow to the U.S. central bank.
“It would destroy the independence of the Fed,” Fischer, who left in 2017, said during a panel discussion with ECB President Mario Draghi and Bank of England Governor Mark Carney. “It’s not something that should be done.”
The Fed, which meets to set policy this week, has been repeatedly taunted by Trump, shattering a nearly three-decade White House tradition of public silence on monetary policy. Jerome Powell, who Trump appointed as Fed chairman last year, has repeatedly stressed that policy makers will ignore political pressure as they set policy to support maximum employment and stable prices.
“I want to say that Jay Powell actually knows the law of the central bank, the law of the central bank is that the government is not allowed to give instructions to the central bank — on policy,” Fischer said. “They can intervene to say that the central bank is getting too big whatever it is, but they cannot give policy instructions.”