Tuesday 16 October 2018

2018-11 US president attacks the central bank

Donald Trump yet again attacked the Federal Reserve, US central bank, for raising interest rates.
What is happening? With record low unemployment, fast growth and inflation above 2% the FED hs been increasing interest rates. That is to be expected when the economy is so strong and interest rates so low. But higher interest rates will slow down economic growth and so Trump criticizes the FED.
The FED is, in principle, independent. The president, who nominates FED chair and board members, can dismiss them but only for cause. In general it is believed that a policy disagreement is not sufficient to dismiss a board member.
So the criticism is unlikely to have much of an effect.
In contrast to the FED, the Federal Government can force the Governor of the Bank of Canada to resign in case of a fundamental policy disagreement. It would issue a directive, ordering the Governor to adopt a particular policy. It is believed that the Governor will then implement the policy and resign. This has never happened.

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