Lawmakers, Wall Street shrug off Trump's escalating Fed attacks

Lawmakers, Wall Street shrug off Trump's escalating Fed attacks
© Greg Nash

GOP lawmakers are downplaying President TrumpDonald John TrumpTrump knocks BuzzFeed over Cohen report, points to Russia dossier DNC says it was targeted by Russian hackers after fall midterms BuzzFeed stands by Cohen report: Mueller should 'make clear what he's disputing' MORE's escalating attacks on the Federal Reserve, saying his comments are unlikely to influence the central bank’s policy makers, many of whom were appointed by Trump.

Republicans on Capitol Hill said that while they may disagree with the substance of Trump’s remarks, they support his right to break with decades of White House precedent by publicly criticizing the Fed, an entity that fiercely guards its independence from politics.

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The president on Wednesday blamed the Fed for the steep stock market slide, telling reporters that the central bank “has gone crazy” and is “making a mistake” with its “ridiculous” rate hikes. Later that day he said the Fed “is going wild.”

Sen. Mike RoundsMarion (Mike) Michael RoundsTrump tells GOP senators he’s sticking to Syria and Afghanistan pullout  Senators look for possible way to end shutdown GOP senators would support postponing State of the Union MORE (R-S.D.), a member of the Senate Banking Committee, said Trump is just expressing his opinion.

“I have no objection to him sharing his thoughts on it just like all of us like to share our thoughts on it,” Rounds said. "I don't think it will pose a challenge to the Fed's independence.”

In July, Trump broke two decades of White House silence on the Fed’s monetary policy when he said he was “not thrilled” about interest rate hikes. The following month he made similar remarks but also expressed displeasure with Chairman Jerome Powell. Trump nominated Powell to replace former Fed chief Janet YellenJanet Louise YellenOvernight Energy: House Dem to offer measure backing Paris climate deal | Former Federal Reserve chiefs call for carbon tax | Watchdog urges agencies to update climate guidance Former Federal Reserve chairs, economists, back carbon tax Jay Powell ignores the stock market at the economy's peril MORE, an Obama-era appointee.

Trump escalated his attacks this past week as the stock market suffered a significant slide on Wednesday and Thursday. He explicitly pinned blame on the Fed, which has raised interest rates toward historically neutral levels.

“I don't know what their problem is,” Trump said late Wednesday.

His barbs did little more than raise eyebrows on Wall Street, and the market did not appear to move in response to the president’s comments.

Karen Petrou, managing partner at Federal Financial Analytics, said it was “fascinating … how immediately U.S. markets totally discounted what the president said.”

She said the yawning reaction on Wall Street is likely a sign that traders “are getting used to him saying a lot of things that no president has said before and they have confidence in the Fed’s strength and independence.”

Sen. Sherrod BrownSherrod Campbell BrownSen. Casey says he won't run for president in 2020 The Hill’s 12:30 Report: Day 27 of the shutdown | Cohen reportedly paid company to rig online polls, boost his own image | Atlantic publishes ‘Impeach Donald Trump’ cover story Not your ‘grandfather’s’ campaign: 2020 Dems look to stand out in crowded race MORE (Ohio), the top Democrat on the Senate Banking Committee who’s up for reelection this year in a state Trump won in 2016, said Trump’s attacks on the Fed are a symptom of his governing style.

“People are so used to this president commenting on everything and being critical of everybody else and pointing fingers — it's always somebody else's fault — of course he's going to do it,” he said.

Unlike previous presidents, lawmakers have been critical of the Fed throughout the bank’s history. A 2016 measure sponsored by Sen. Rand PaulRandal (Rand) Howard PaulPressure mounts for Trump to reconsider Syria withdrawal House Republicans call for moving State of the Union to Senate chamber GOP rep: 'Rand Paul is giving the president bad advice' on Afghanistan and Syria MORE (R-Ky.) to audit the Fed came within seven votes of passing the Senate.

But GOP supporters of that effort, which would have allowed more government oversight of the independent institution, said they respect the Fed’s independence and don’t think that Trump is working to undermine the bank.

Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoSenate advances measure bucking Trump on Russia sanctions Deutsche Bank targeted by Dems over Trump ties Senators offer measure naming Saudi crown prince 'responsible' for Khashoggi slaying MORE (R-Idaho) said Trump’s criticisms won’t sway the Fed, but he declined to comment on whether it was appropriate for the president to blast the bank.

Crapo’s predecessor as the Banking panel chairman, Sen. Richard ShelbyRichard Craig ShelbyCentrist efforts to convince Trump to end shutdown falter Bipartisan group of senators will urge Trump to reopen government for 3 weeks Leaders nix recess with no shutdown deal in sight MORE (R-Ala.), said he’s confident the Fed will follow the data, not Trump.

"Price stability is important to all of us, so let's see what the Fed does, how they do it,” Shelby said. “But they probably have information that maybe we don't have.”

For almost four decades, the Fed has operated under a congressional mandate to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates.”

Most Republicans are eager to see the Fed neutralize interest rates as unemployment falls into record-low territory and inflation begins to pick up. But Trump has blasted the Fed for raising borrowing costs, saying the rate hikes are suppressing the stock market, his favored metric for economic success.

Stock markets have registered significant gains since Trump took office, and analysts say they’re poised for a correction. While higher interest rates are weighing on markets, traders have also been rattled by the protracted U.S.-China trade war.

“The stock market is [Trump’s] economic report card, so if it’s in the red he’s falling, and he’s going to do anything he can to get that in green,” said Mark Zandi, chief economist at Moody’s Analytics.

“Investors are discounting what the president is saying. They're not putting any weight on his criticism or protestations,” Zandi said, adding that investors have already priced in a likely December rate hike by the Fed.

Trump has few options to sway the Fed even if he decided to take action. The president is prohibited by law from firing the Fed chairman for anything other than extreme misconduct, and Republicans are unlikely to support Fed nominees seen as cronies to the president.

“This is a lot of noise, but at the end of the says nothing of substance,” Zandi said. “He’s not going to try to replace Powell or pack the Fed that are only sympathetic to his perspective.”