The Fed shouldn’t hit back at Trump, just talk louder
The problem with Trump’s “major loser” jibes at the Fed isn’t that they’re wrong (though they are), it’s that they’re being heard, says Tim Focas
If you closed your eyes and listened to President Trump lambast Federal Reserve chair Jerome Powell, you might think you were watching this Sunday’s Wrestlemania, not a political announcement. “Major loser!” Trump sneered, channelling his inner Hulk Hogan, as if Powell were about to climb into a steel cage match instead of testifying before Congress.
But while the President’s verbal body slams may be off-key, they hit a note that should resonate within the marble walls of the Federal Reserve. It’s time for the Fed to stop whispering and start speaking plainly.
Let’s be clear, the Federal Reserve is not the President’s punching bag. It is an independent central bank with a congressional mandate to promote maximum employment, set interest rates and price stability. Its job isn’t to entertain the markets, or the White House, but to steer the US economy with steady hands and sober judgment. And to its credit, the Fed has, for the most part, done just that.
But in today’s hyper-political, meme-driven world, the Fed’s stoic, technocratic approach to communication isn’t cutting through. When markets are shaky and recessions loom, as the IMF has warned, thanks in part to Trump’s trade wars, the public needs reassurance. Instead, they get jargon-heavy statements, footnotes on neutral rates, and a standoffish demeanour that would make even a seasoned economist squint.
“The Fed is crazy”
Meanwhile, Trump is out here cutting promos. “The Fed is crazy,” he once said. “They don’t know what they’re doing.” The problem isn’t that he’s wrong (he often is), it’s that he’s being heard. Loudly. And in the absence of an equally compelling counter-narrative, his critique fills the vacuum.
The Fed should not take the bait and enter the ring. But it can grab the mic. What’s needed isn’t more rate hikes or cuts, but a new approach for how monetary policy is explained to not just the American people, but to the rest of the world – particularly given how important the US economy is to every man and his dog. The Fed must demystify its decisions, break down its rationale in simple, non-technical language, and use accessible platforms, like social media, to tell its story. Powell and his colleagues aren’t characters in a reality show, but that doesn’t mean they can’t speak like real people.
Take former Fed Chair Ben Bernanke’s excellent blog, which unpacked monetary policy with clarity and humour after he left office. Imagine if current Fed officials did the same, while still in office. Imagine a Fed that explained its thinking not just to financial reports but to the people whose mortgages, jobs, and savings depend on it.
Trump’s bluster may be cartoonish, but it points to a serious vulnerability
Trump’s bluster may be cartoonish, but it points to a serious vulnerability. When the public doesn’t understand what the Fed is doing, they’re more likely to believe those who shout the loudest. If the Fed wants to safeguard its independence, it needs to earn trust not just from markets but from Main Street.
So no, the Fed doesn’t need to trade verbal blows with Trump – who true to form has rowed back on his Powell jibes overnight. It just needs to step out of the shadows, take the mic, and talk straight. In a world full of showmen, sometimes the most revolutionary thing you can do is simply make sense.
Tim Focas is head of capital markets at Aspectus group