US Economy: Maintaining central bank independence in the Trump era

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Europe

02:24

Throughout its history, the U.S. central bank, the Federal Reserve, has fought to maintain its independence. And now it's arguably facing one of its toughest tests under President Trump. CGTN's Owen Fairclough explains why.

U.S. central bank head Jerome Powell announcing another rise in its main interest rate.

And a swift reaction from the man who appointed Powell to run the Federal Reserve.

DONALD TRUMP US PRESIDENT "I'm worried about the fact that they raised the interest rate. I don't like it."

In July he said he wasn't happy with Powell raising interest rates because it could slow U.S. economic growth.

OWEN FAIRCLOUGH WASHINGTON DC "The White House quickly clarified Trump's remarks, claiming he respects the Fed's independence. That's because Trump had broken an unwritten rule that the central bank should be free to do its work without political interference."

So why does it matter?

JAMES ANGEL ASSOCIATE PROFESSOR OF FINANCE, GEORGETOWN UNIVERSITY "You want to have an independent central bank that looks beyond the next election and says what is right for the entire country. If you have a politician who's attacking the independence of the central bank, then you bring up the whole problem of political interference. That's dangerous."

And if interest rates are too high for Trump now, they were too low when he ran for president. Trump replaced Powell's predecessor, Janet Yellen, for keeping interest rates at record lows to make borrowing cheap. He claimed it helped his election rival Hillary Clinton.

DONALD TRUMP US PRESIDENT "This Janet Yellen of the Fed. The Fed is doing political by keeping the interest rates at this level."

Trump isn't the first President to try to influence the Fed. Soaring inflation during the 1970s economic crisis was partly blamed on President Richard Nixon pressuring the then Fed Chair to keep interest rates low. So is the Fed's independence at risk under Trump?

JAMES ANGEL ASSOCIATE PROFESSOR OF FINANCE, GEORGETOWN UNIVERSITY "They've done a pretty good job over the last century and I think this current structure can probably last for another century and do a pretty good job."

Powell is mindful of his role upholding the Fed's independence. And even if he was appointed by the President, he's accountable to Congress, not the White House. Owen Fairclough, CGTN, Washington.