PhotoFederal Reserve Board Chairman Jerome Powell insists that President Trump’s constant criticism has no influence over Fed policy, but new research shows not everyone agrees.

Researchers at Duke University and the London Business School have published findings after studying the President’s tweets that harshly criticized the Fed for raising rates, then not lowering them enough.

They compared the President’s criticism with resulting price changes in the fed funds futures market, where traders place bets on whether the Fed will raise or lower its key interest rate.

The researchers said Trump’s harshly critical tweets had the effect of lowering expectations for what the central bank would do at an upcoming meeting. The researchers said they found “strong evidence” that Trump’s pressure caused traders to expect a lower rate. They suggest it shows a “steady erosion” in the Fed’s independence during the Trump administration.

Political pressure

“Even if President Trump does not directly influence Fed decisions, his political pressure can still affect policy indirectly by changing market expectations regarding the Fed,” the researchers concluded.

Trump began his criticism of Fed Chairman Jerome Powell in the latter part of 2018 when the Fed continued a policy, started under Chairwoman Janet Yellen, of raising the federal funds rate, which had been at near 0 percent since late 2008.

Trump kept up the criticism after the Fed reversed course and began cutting the key interest rate. Most recently Trump suggested the Fed should cut the rate to 0 percent, or even adopt negative interest rates as some European central banks have done.

"The Federal Reserve should get our interest rates down to ZERO, or less," the president wrote in a recent tweet.

Latest cut

After raising rates aggressively last year, the Fed has cut its key federal funds interest rate to a range of 1.75 percent to 2 percent. Historically, that’s very low. Cutting rates is normally something done when an economy is faltering, but economists say there has been little evidence of that in the U.S.

The researchers said their findings highlight a concern that -- true or not --  market participants have concluded that the president’s constant criticism has eroded Fed independence. That perceived erosion is “persistent and consistent,” they write.

The Fed met last week and cut the federal funds rate by a quarter-point, suggesting another quarter-point cut may be needed before the end of the year. Even that was not enough to placate the president, who tweeted that Powell and his colleagues had “no guts, no sense, no vision.”

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