Former Fed Vice Chairman Randall Quarles dismissed concerns that the Fed’s independence would be at risk under President-elect Donald Trump. Speaking to Bloomberg TV during a forum, Quarles cleared up misconceptions about central bank independence.
Quarles male There are several structural protections that prevent the president from exercising undue influence over the central bank.
“There is a fair amount of misunderstanding about what Fed independence is. The independence of the Fed does not mean that the President cannot express his view on Fed policy“Quarles said,” he said.The Fed can’t really be influenced by the president’s bully pulpit. Political pressures exist, but there are no political tools to give up independence.“
These statements come amid ongoing concerns stemming from Trump’s sharp criticism of Federal Reserve Chairman Jerome Powell last year. Trump has too repeat He will not reappoint Powell when his term ends in 2026.
Fed policy faces political pressure
During his election campaign, Trump repeatedly criticized the Federal Reserve’s monetary policies, claiming that interest rates were still too high. In a press conference held at his resort in Mar-a-Lago, Trump accused the outgoing administration of exacerbating economic difficulties.
“We are inheriting a difficult situation, and they are trying to make it worse. Inflation is still raging, and interest rates are very high.” Trump said.
Federal Reserve reduced Interest rates triple in 2024, marking a reversal from the strong increases in 2022 and 2023. The last cut occurred in September, bringing the federal funds rate to a range of 4.75%-5%.
However, inflation data at the end of 2024 suggest that progress in curbing price increases has stalled, even as the labor market remains resilient.
The Federal Open Market Committee (FOMC), which sets monetary policy, is scheduled to meet at the end of January. This meeting will be held shortly after Trump takes office, bringing more political focus to the central bank’s decisions.
Quarles addressed other policy considerations under the incoming Trump administration, including tariffs and deportations. Although he acknowledged that tariffs could affect inflation, he downplayed their long-term impact. “Tariffs in and of themselves need not be inflationary, although they may lead to the Fed lowering interest rates.He explained.
The former Fed vice chairman also noted that physical deportations, which Trump has indicated would be a priority, are unlikely to significantly impact the labor market.
Economic prospects and inflation concerns
Only a week ago Trump’s inaugurationThe Fed is facing increasing criticism, especially regarding its strategy to address inflation and maintain the labor market. Federal Reserve officials have raised concerns about how the new administration’s policies might challenge the central bank’s commitment to its 2% inflation target.
During his first term, Trump often criticized Powell for resisting calls to lower interest rates. The president-elect’s public rebuke of the Fed chairman violates traditional norms of respect for central bank independence.
The 47th President of the United States also suggested during the election campaign that he should have a say in monetary policy, saying: “I make a lot of money, so I should at least have an opinion.“
Given the current market sentiment, investors have revised their expectations for 2025, pricing in smaller interest rate cuts than initially expected. Moreover, stronger-than-expected December employment data prompted major banks, including Bank of America, Citigroup, and Goldman Sachs, to revise their forecasts.
Financial markets now expected The interest rate will be cut only once in 2025, most likely in October.
Quarles noted that markets are now more closely aligned with the Fed’s potential actions. “Markets are pricing the Fed’s moves more accurately this year than last,“He pointed out.
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