Political pressure from President Donald Trump may have been a factor in the Federal Reserve's recent interest rate cut decision, according to Steve Liesman, the Senior Economics Reporter at CNBC.
The Fed ‘Does Not Exist In A Political Vacuum’
Speaking on The Real Eisman Playbook on Monday, Liesman said that “The Federal Reserve does not exist in a political vacuum,” and it “never has.”
He pointed to its aggressive fight against inflation in 2022 as an example of how political dynamics shape monetary policy, adding that officials “had political permission to fight inflation with both hands and both feet” at the time.
When asked how such permission manifests by host Steve Eisman, Liesman responded, saying that “It's a gestalt. It's in the air,” noting that it’s a shared understanding when “neither side is complaining or pushing back,” which allows the Fed to act decisively.
Liseman said that Trump's repeated public pressure on the central bank could have played a role in its decision to ease policy.
“It's not entirely clear to me that in the absence of the pressure the president has put on the Fed that they would have cut at the last meeting,” he said. “I think it plays in the room without talking about it.”
Liesman noted that the current political atmosphere has made it easier for the Fed to lower rates, saying that neither party is really pushing back. He pointed out that “the Dems are not complaining,” and at the same time, “the Republicans are pushing” for rate cuts.
As a result, he said, “the milieu in which the Fed is operating is one in which it's okay to cut.”
Fed’s Independence Essential To Maintain Financial Order
Recently, the Bank of England warned that the U.S. Federal Reserve’s independence is of paramount importance for keeping borrowing costs low and maintaining financial order.
According to the bank, a “sudden or significant change in perceptions of Federal Reserve credibility” will lead to “a sharp re-pricing of US dollar assets, including in US sovereign debt markets,” which it says could lead to “increased volatility, risk premia, and global spillovers.”
This comes amid growing attacks on the Fed’s independence by President Donald Trump, who recently attempted to fire Fed Governor Lisa Cook, a move that could result in a rare majority in the Federal Open Market Committee, which makes crucial interest rate decisions.
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